Late disregarded entity election receives 120-day extension

Plain-English summary

A state-law entity had elected S corporation treatment from its formation date. When its S election later terminated, it intended to change its federal classification to a disregarded entity effective on the same date. The entity inadvertently failed to timely file Form 8832. The IRS found that the requirements for discretionary regulatory-election relief were satisfied and granted 120 days from the ruling date to file the form. If filed as directed, the entity could elect disregarded status effective on the requested prior date.

Ruling snapshot

• Question: May the entity file Form 8832 late to be treated as a disregarded entity effective when its S election terminated?
• Outcome: Approved, with a 120-day filing period
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201440005
Third Party Communication: None
Release Date: 10/3/2014
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
Person To Contact:
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CC:PSI:B01
PLR-106657-14
Date:
June 23, 2014

LEGEND

X = -----------------------------------------------------------------------------------------
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Date 1 = --------------------------

Date 2 = -------------------------

State = -----------

Dear ---------------------:

This responds to a letter dated February 11, 2014, submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election under § 301.7701-3(c) to be treated as a disregarded entity for federal tax purposes.

FACTS

According to the information submitted, X was formed under the laws of State on Date 1. Effective Date 1, X elected to be treated as an S corporation for federal tax purposes. Effective Date 2, X’s election to be treated as an S corporation was terminated. X intended to elect to change its classification to a disregarded entity effective Date 2. However, X inadvertently failed to timely file Form 8832, Entity Classification Election, to elect to be treated as a disregarded entity for federal tax purposes.

LAW AND ANALYSIS

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Section 301.7701-3(a) provides in part that a business entity that is not classified as a corporation under section 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can elect its classification for federal tax purposes. A domestic eligible entity with at least two members can elect to be classified as either an association or a partnership, and a domestic eligible entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner.

Section 301.7701-3(c)(1) provides that an entity classification election, or change in entity classification, must be filed on Form 8832 and can be effective up to 75 days prior to the date the form is filed or up to 12 months after the date the form is filed.

Section 301.7701-3(c)(1)(iv) states, in part, if an eligible entity makes an election to change its classification, the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election. An election by a newly formed eligible entity that is effective on the date of formation is not considered a change for purposes of this paragraph (c)(1)(iv).

Section 301.7701-3(c)(2)(i) provides that such an election must be signed by either (A) each member of the electing entity who is an owner at the time the election is filed; or (B) any officer, manager, or member of the electing entity who is authorized (under local law or the entity’s organization documents) to make the election and who represents to having such authorization under penalties of perjury. Section 301.7701- 3(c)(2)(iii) provides, in part, if an election is made to change the classification of an entity, each person who was an owner on the date that any transactions under section 301.7701-3(g) are deemed to occur, and who is not an owner at the time the election is filed, must also sign the election.

Section 301.7701-3(c)(1)(v)(C) provides, in part, that an eligible entity that timely elects to be an S corporation under section 1362(a)(1) is treated as having made an election under section 301.7701-3 to be classified as an association. Subject to section 301.7701-3(c)(1)(iv), the deemed election to be classified as an association will apply as of the effective date of the S corporation election and will remain in effect until the entity makes a valid election, under section 301.7701-3(c)(1)(i), to be classified as other than an association.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as an election whose due date is prescribed by a regulation published in the Federal Register or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

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Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make the election. Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of section 301.9100-2. Under section 301.9100-3, a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) the granting relief will not prejudice the interests of the government.

CONCLUSION

Based solely on the information submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. As a result, X is granted an extension of time of 120 days from the date of this letter to file a Form 8832 with the appropriate service center to elect to be treated as a disregarded entity for federal tax purposes effective Date 2. A copy of this letter should be attached to the Form 8832. A copy is enclosed for that purpose.

Except as specifically set forth above, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

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Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

David R. Haglund
By: David R. Haglund
Branch Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)

Copy of this letter
Copy of this letter for section 6110 purposes

cc: