LLC received relief for late corporate and S elections

Plain-English summary

A single-member limited liability company intended to be treated first as an association taxable as a corporation and then as an S corporation from the same effective date. It failed to timely file both Form 8832 and Form 2553. The company represented that it acted reasonably and in good faith, was not using hindsight, and would not prejudice the government. The IRS granted 120 days to file both elections with copies of the ruling attached. S corporation treatment remained conditional on the company otherwise qualifying for that status.

Ruling snapshot

• Question: Could an LLC make late entity-classification and S corporation elections effective from its intended start date?
• Outcome: Approved, with 120 days to file Forms 8832 and 2553
• 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: 201523006 Third Party Communication: None
Release Date: 6/5/2015 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-134140-14
Date:
February 13, 2015

LEGEND

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

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

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

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

This responds to a letter dated September 7, 2014, and subsequent information,
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 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

According to the information submitted, X was incorporated on Date as a limited liability
company under the laws of State. X‘s sole member intended to treat X as an
association taxable as a corporation and to elect to be treated as an S corporation for
federal tax purposes, with both elections 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 it acted reasonably and in good faith. X further represents that
hindsight is not involved in seeking relief to file a late election. Finally, X represents that
the interests of the government will not be prejudiced by granting the requested relief.
PLR-134140-14 2

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 § 301.9100-3, 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.
PLR-134140-14 3

Section 1362(b) provides the rule as to 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
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.

Except as expressly set forth herein, no opinion is expressed or implied concerning the
federal tax consequences of the facts described above under any other provision of the
Code, including whether X is otherwise eligible to be an S corporation for federal tax
purposes.

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-134140-14 4

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)



                                    By: Joy C. Spies
                                    Joy C. Spies
                                    Senior Technician Reviewer, 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