Surviving LLC gets 120 days to elect corporate classification after a merger

Plain-English summary

An S corporation merged into an LLC, with the LLC surviving, and the parties intended the transaction to qualify as an IRC § 368(a)(1)(F) reorganization. The LLC also intended to be treated as an S corporation from the merger date but inadvertently failed to file Form 8832 electing classification as a corporation. The IRS found that the LLC satisfied the requirements for discretionary election relief. It granted 120 days to file Form 8832 with corporate classification effective on the intended date. The IRS did not decide whether the predecessor's S election was valid or whether the merger actually qualified as an F reorganization.

Ruling snapshot

• Question: May the LLC make a late election to be classified as an association taxable as a corporation from the merger date?
• Outcome: Approved, with Form 8832 due within 120 days
• Key authorities: IRC § 368(a)(1)(F); Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                Washington, DC 20224

Number: 201902026                                               Third Party Communication: None
Release Date: 1/11/2019                                         Date of Communication: Not Applicable
Index Numbers:7701.00-00, 9100.00-00,
               9100.31-00                                       Person To Contact:
                                                                -----------------------, ID No. -------------------
----------------------------                                    ---------------------------------------------------
--------------------------------------------                    Telephone Number:
--------------------------------------------------------        ----------------------
 ---------------------------                                    Refer Reply To:
                                                                CC:PSI:B3
                                                                PLR-115478-18
                                                                Date:
                                                                October 11, 2018

                                                     Legend

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X              =     ----------------------------------------
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Y              =     ----------------------------------------
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State          =     ----------------------------------------
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Date #1        =     ----------------------------------------
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Date #2        =     -------------------


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

        This letter responds to a letter dated May 7, 2018, submitted on behalf of X by
its authorized representative, 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 an association taxable as a corporation for federal tax purposes.

                                                      Facts

       The information submitted discloses that X was organized on Date #1 under the
laws of State as a limited liability company. On Date #2, Y, an S corporation, merged
with X with X the surviving entity. X represents that it intended the merger to qualify for
tax-free treatment under § 368(a)(1)(F) of the Internal Revenue Code (“Code”). X
intended at all times to be treated as an S corporation for federal tax purposes, effective
Date #2. However, due to inadvertence, X failed to timely file Form 8832, Entity

Classification Election, to be classified as an association taxable as a corporation
effective Date #2.

                                     Law and Analysis

        Section 301.7701-3(a) provides, in part, 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 as provided in
§ 301.7701-3. An eligible entity with at least two members can elect to be classified as
either an association (and thus a corporation under § 301.7701-2(b)(2)) or a
partnership, and an 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(b)(1)(i) provides that except as provided in § 301.7701-
3(b)(3), unless the entity elects otherwise, a domestic eligible entity is (A) a partnership
if it has two or more members or (C) disregarded as an entity separate from its owner if
it has a single owner.

        Section 301.7701-3(c)(1)(i) provides, in part, that an eligible entity may elect to
be classified other than as provided under § 301.7701-3(b), or to change its
classification, by filing Form 8832 with the service center designated on Form 8832.

        Section 301.7701-3(c)(1)(iii) provides that an election made under § 301.7701-
3(c)(1)(i) will be effective on the date specified by the entity on Form 8832 or on the
date filed if no such date is specified on the election form. The effective date specified
on Form 8832 can not be more than 75 days prior to the date on which the election is
filed and can not be more than 12 months after the date on which the election is filed. If
an election specifies an effective date more than 75 days prior to the date on which the
election is filed, it will be effective 75 days prior to the date it was filed.

        Section 301.9100-1(c) provides that the Commissioner in exercising the
Commissioner’s discretion may grant a reasonable extension of time under the rules set
forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory
election (but not more than 6 months except in the case of a taxpayer who is abroad),
under all subtitles of the Internal Revenue Code (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.

      Section 301.9100-2 provides the standards the Commissioner will use to
determine whether to grant an automatic extension of time for making certain elections.

       Section 301.9100-3 provides the guidelines for granting extensions of time for
making elections that do not meet the requirements of § 301.9100-2. Section 301.9100-
3(a) provides that requests for relief subject to § 301.9100-3 will be granted when the
taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to
establish to the satisfaction of the Commissioner that the taxpayer acted reasonably
and in good faith, and the grant of relief will not prejudice the interests of the
Government.

                                        Conclusion

        Based solely on the facts submitted and the representations made, we conclude
that X has satisfied the requirements of § 301.9100-3. As a result, we grant X an
extension of time of one hundred twenty (120) days from the date of this letter to file
Form 8832 with the appropriate service center to elect to be classified as an association
taxable as a corporation for federal tax purposes, effective Date #2. A copy of this
letter should be attached to the Form 8832.

       Except as specifically set forth above, we express or imply no opinion concerning
the federal tax consequences of the facts of this case under any other provision of the
Code. Specifically, we express or imply no opinion as to whether the original election
made by Y to be an S corporation was a valid election under § 1362 and whether the
merger transaction described above was a reorganization under § 368(a)(1)(F).

      We are directing the ruling only to the taxpayer who requested it. Section
6110(k)(3) of the Code provides that it may not be used or cited as precedent.

        Pursuant to a power of attorney on file with this office, we are sending a copy of
this letter to X’s authorized representative.

       The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the ruling request, it is subject to verification on examination.


                                         Sincerely,
                                         Associate Chief Counsel
                                        (Passthroughs & Special Industries)


                                     By: _______________________
                                         Caroline E. Hay
                                         Assistant to the Branch Chief, Branch 3
                                         Office of the Associate Chief Counsel
                                         (Passthroughs & Special Industries)

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