LLC receives late corporate classification and S election relief

Plain-English summary

A limited liability company intended to be taxed as a corporation and as an S corporation from a specified date, but neither Form 8832 nor Form 2553 was timely filed. The company represented that the failures were not motivated by tax avoidance or retroactive planning and agreed with its shareholders to make any required adjustments. The IRS granted 120 days to file the corporate classification election and found reasonable cause for the late S election under section 1362(b)(5). S status will be recognized from the requested date if the company otherwise qualifies and files both elections within the permitted period. The company and its owner must also file all required original or amended returns consistently with the relief within 120 days.

Ruling snapshot

• Question: May the LLC make late elections for corporate classification and S corporation status?
• Outcome: Approved, conditioned on filing Forms 8832 and 2553 and all consistent returns within 120 days.
• Key authorities: IRC § 1362(b)(5); 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: 201515021 Third Party Communication: None
Release Date: 4/10/2015 Date of Communication: Not Applicable
Index Number: 1362.01-03, 9100.00-00
Person To Contact:
---------------------------- -----------------------, ID No. -------------------
---------------------------------------------- ---------------------------------------------------
------------------------------------------------ Telephone Number:
--------------------------------- ----------------------
Refer Reply To:
CC:PSI:B01
PLR-125467-14
Date:
November 12, 2014

Legend

X= --------------------------------------------------------

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

Date = ---------------------------

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

This letter responds to a letter dated June 30, 2014, submitted on behalf of X by its
authorized representatives, requesting an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations to file an election under § 301.7701-3 to be
treated as a corporation for federal tax purposes and relief to file a late S corporation
election under § 1362(b)(5) of the Internal Revenue Code.

                                                 FACTS

The information submitted provides that X is a limited liability company organized under
the laws of State. X represents that it was eligible to elect to be treated as an
association taxable as a corporation and to elect to be classified as an S corporation
effective Date. However, neither Form 8832, Entity Classification Election, nor Form
2553, Election by a Small Business Corporation, was timely filed for X.

X represents that the failure to timely file the election was not motivated by tax
avoidance or retroactive tax planning. X and its shareholders have agreed to make any
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adjustments that the Commissioner may require, consistent with the treatment of X as
an S corporation.

                                LAW AND ANALYSIS

Section 301.7701-3(a) provides that a business entity that is not classified as a corporation
under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can elect its
classification for federal tax purposes. Elections are necessary only when an eligible entity
does not want to be classified under the default classification or when an eligible entity
chooses to change its classification.

Section 301-7701-3(b)(2)(i) provides that, except for certain existing entities described in §
301-7701-3(b)(3), unless a domestic eligible entity elects otherwise, the entity is (A) a
partnership if it has two or more members; or (B) disregarded as an entity separate from its
owner if it has a single owner.

Section 301.7701-3(c)(1)(i) provides that an eligible entity may elect to be classified other
than as provided under § 301-7701-3(b)(2) by filing Form 8832 with the appropriate service
center. Under § 301-7701-3(c)(1)(iii), this election will be effective on the date specified by
the entity on Form 8832 or on the date filed if no such date is specified. The date specified
on Form 8832 cannot be more than 75 days prior to the date on which the election is filed
and no more than 12 months after the date the election is filed.

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) provides that the term "regulatory
election" includes an election whose due date is prescribed by a regulation published in the
Federal Register.

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 the regulatory elections that do not meet the requirements
of § 301.9100-2. Under § 91003, a request for relief will be granted when a taxpayer
provides evidence to establish to the satisfaction of the Commissioner that (1) the taxpayer
acted reasonably and in good faith, and (2) granting relief will not prejudice the interests of
the government.

Section 1362(a) provides that a small business corporation may make an election to be an
S corporation.

Section 1362(b) provides the rule on when an S election will be effective. Section
1362(b)(2) provides, in relevant part, that if an S election is made within the first two and
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one-half months of a corporation's taxable year, then the corporation will be treated as an S
corporation for the year in which the election is made. Under § 1362(b)(3), an S election
made after the first two and one-half months of a corporation's taxable year, results in the
corporation not be treated as an S corporation until the taxable year following the year in
which the S election is filed.

Section 1362(b)(5) provides that if (A) an election under § 1362(a) is made for any taxable
year after the date prescribed by § 1362(b) for making the election for the taxable year or no
§ 1362(a) election is made for any taxable year, and (B) the Secretary determines that there
was reasonable cause for the failure to timely make the election, then the Secretary may
treat the election as timely made for such taxable year and § 1362(b)(3) shall not apply.

                                   CONCLUSION

Based solely on the facts submitted and representations made, we conclude that X has
satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Accordingly, X is granted an
extension of time of one hundred twenty (120) days from the date of this letter to elect to be
treated as an association taxable as a corporation for federal tax purposes effective Date.
The election should be made by filing a properly executed Form 8832 with the appropriate
service center. A copy of this letter should be attached to the election.

In addition, we conclude that X has established reasonable cause for failing to timely make
an election to be an S corporation and, thus, is eligible for relief under § 1362(b)(5).
Provided that X otherwise qualifies as an S corporation, we conclude that X will be
recognized as an S corporation effective Date if X files a completed Form 2553 effective
Date with the appropriate service center within one hundred and twenty (120) days from the
date of this letter. A copy of this letter should be attached to the election.

This ruling is contingent on X and the owner of X filing within 120 days from the date of the
letter any required returns (including amended returns) consistent with the requested relief
granted in this letter. A copy of this letter should be attached to any such returns.

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) of the Code
provides that it may not be used or cited as precedent.
PLR-125467-14 4

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representatives.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)



                                By: David R. Haglund



                                   David R. Haglund
                                   Chief, Branch 1
                                   (Passthroughs & Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes