LLC receives late corporate classification and S election relief

Plain-English summary

A single-member limited liability company intended from its formation date to be classified as an association taxable as a corporation and to elect S corporation status. It failed to timely file both Form 8832 and Form 2553. The company represented that it acted reasonably and in good faith, that relief would not prejudice the government, and that it was not using hindsight. The IRS granted 120 days to file Form 8832 with the requested effective date. It also ruled that a completed Form 2553 filed within the same period would be treated as timely, without deciding whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Should the LLC receive relief for late entity-classification and S corporation elections?
• Outcome: Approved: both elections will be treated as timely if the required forms are filed within 120 days.
• Key authorities: IRC §§ 1361 and 1362; Treas. Reg. §§ 301.7701-3, 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202116009 Third Party Communication: None
Release Date: 4/23/2021 Date of Communication: Not Applicable
Index Number: 9100.31-00, 1362.01-03
Person To Contact:
--------------------------------------- --------------------, ID No. -----------------
-------------------------------- Telephone Number:
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------------------------------- Refer Reply To:
CC:PSI:03
PLR-117738-20
Date:
January 25, 2021

Legend

X: ----------------------------------------

State: ------------

Date: ------------------------------

Year: ----------------

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

This letter responds to a letter dated August 3, 2020, submitted on behalf of X by its
authorized representatives, requesting a ruling 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, and relief to file a late
S corporation election under § 1362(b)(5) of the Internal Revenue Code (Code).

                                                 FACTS

The information submitted states that X was formed as a single member limited liability
company under the laws of State. At the time of formation, X’s default status was as a
disregarded entity for federal tax purposes. The members of X intended that X be
treated as an association taxable as a corporation and to elect for X to be treated as an
S corporation for federal tax purposes, with both elections effective Date. However, X
inadvertently failed to properly and timely file both Form 8832, Entity Classification
Election, and Form 2553, Election by a Small Business Corporation.
PLR-117738-20 2

X represents that it acted reasonably and in good faith, that granting relief will not
prejudice the interests of the government, and that it is not using hindsight in making the
election.

                               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 chooses to be classified initially as other than the default classification or
when an eligible entity chooses to change its classification.

Section 301.7701-3(b)(1) provides that unless the entity elects otherwise, a domestic
eligible entity is: (i) a partnership if it has two or more members; or (ii) 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) by filing Form 8832, Entity Classification
Election, with the appropriate service center. Section 301.7701-3(c)(1)(iii) provides that
this election will be effective on the date specified by the entity on Form 8832 or on the
date filed if no such date if specified. The date specified on Form 8832 cannot be more
than 75 days prior to the date on which the election is filed.

Section 301.7701-3(c)(1)(v)(C) provides that an eligible entity that timely elects to be an
S corporation under § 1362(a)(1) is treated as having made an election to be classified
as an association, provided that (as of the effective date of the election under
§ 1362(a)(1)) the entity meets all other requirements to qualify as a small business
corporation under § 1361(b). Subject to § 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
§ 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 under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a
regulatory election, or statutory election (but not more than 6 months except in the case
of a taxpayer who is abroad), under all subtitles of the 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 rules governing automatic extensions 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.
PLR-117738-20 3

Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3 will be
granted when the taxpayer provides 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.

Section 301.9100-3(b)(1)(i) provides that a taxpayer will be deemed to have acted
reasonably and in good faith if the taxpayer; requests relief under this section before the
failure to make the regulatory election is discovered by the Service.

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

Section 1362(b)(1) provides that an election under § 1362(a) may be made by a small
business corporation for any taxable year (A) at any time during the preceding taxable
year, or (B) at any time during the taxable year and on or before the 15 th day of the third
month of the taxable year.

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 such an election for such
taxable year or no such election is made for any taxable year, and (B) the Secretary
determines that there was reasonable cause for the failure to timely make such election,
the Secretary may treat such an election as timely made for such taxable year.

                                  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. 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 classified as an association taxable as a
corporation for federal tax purposes effective Date. A copy of this letter should be
attached to the Form 8832.

In addition, based solely on the facts submitted and representations made, we conclude
that X has established reasonable cause for failing to make a timely election to be an S
corporation effective Date. Accordingly, provided that X makes an election to be an S
corporation by filing a completed Form 2553 effective Date, along with a copy of this
letter, with the appropriate Service Center within 120 days from the date of this letter,
then such election will be treated as timely made for X’s Year taxable year.

The rulings contained in this letter are 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 request for rulings, it is subject to verification on examination.
PLR-117738-20 4

Except as expressly provided herein, no opinion is expressed or implied concerning the
federal income tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, we express or imply no opinion concerning
whether X otherwise qualifies as 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. In accordance with the Power of
Attorney on file with this office, a copy of this letter is being sent to your authorized
representative.

                                  Sincerely,

                                 Associate Chief Counsel
                                 (Passthroughs & Special Industries)



                              By:
                                 Adrienne M. Mikolashek
                                 Branch Chief, Branch 3
                                 (Passthroughs & Special Industries)

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

cc: