Entity receives 120 days for a late classification election, but the ruling states conflicting classifications

Plain-English summary

A domestic limited liability company intended to elect association status taxable as a corporation from its initial effective date. It later filed Form 8832 with a later effective date and then filed Form 2553 for S corporation status beginning on a third date. The IRS found that the standards for late-election relief were satisfied and granted 120 days to file Form 8832 and any required consistent returns. The official ruling is internally inconsistent: its request and facts describe an election for corporate classification, but its conclusion says the entity may elect partnership classification effective on the first date. The ruling states that it does not affect the later S corporation election.

Ruling snapshot

• Question: Could the entity receive extra time to correct the effective date of its Form 8832 classification election?
• Outcome: Approved for 120 days, with an unresolved conflict in the ruling text over whether the classification is corporate or partnership.
• Key authorities: Treas. Reg. §§ 301.7701-2, 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: 202133001
Third Party Communication: None
Release Date: 8/20/2021
Date of Communication: Not Applicable
Index Number: 9100.31-00
Person To Contact:
------------------------------------------------------------ -----------------, ID No. -----------------

• Telephone Number:
  --------------------------------------------- --------------------
  ----------------------------- Refer Reply To:
  ------------- CC:PSI:03
  --------------------------- PLR-100234-21
  Date:
  May 24, 2021

Legend:

X: = -------------------------------------------------------------
-----------------------

Date 1: = ---------------------

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

Date 3: = ---------------------

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

Year 1: = -------

Year 2: = -------

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

This letter responds to a letter dated December 15, 2020, and subsequent correspondence submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X to file an election under § 301.7701-3 to be classified as an association taxable as a corporation for federal tax purposes from Date 1 through Date 3.

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FACTS

According to the information submitted, X was formed as a limited liability company under the laws of State. X represents that it intended to make an election to be treated as an association taxable as a corporation for federal tax purposes effective Date 1. However, X inadvertently failed to timely file a Form 8832, Entity Classification Election.

In Year 2, X filed a Form 8832 electing to be classified as an association taxable as a corporation. However, X inadvertently identified the effective date for the election as Date 2 rather than Date 1.

In Year 2, Taxpayer filed a Form 2553, Election by a Small Business Corporation, electing to be taxed as an S corporation effective Date 3. This ruling does not affect that 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. 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) provides that, unless the entity elects otherwise, a domestic eligible entity is classified as a partnership if it has two or more members or is 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), or to change its classification, 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 effective date specified on Form 8832 cannot be more than 75 days prior to the date on which the election is filed and cannot be 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 (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.

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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 § 301.9100-2. Under § 301.9100-3, a request for relief will be granted when a taxpayer provides evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) the grant of 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 §§ 301.9100-1 and 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 classified as a partnership effective Date 1. A copy of this letter should be attached to the Form 8832.

This ruling is contingent on X filing, within 120 days from the date of this letter, to the extent necessary or appropriate, all required federal income tax returns and information 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, we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the Code and the regulations thereunder. In addition, § 301.9100-1(a) provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election.

We express no opinion concerning the assessment of any interest, additions to tax, additional amounts, or penalties for failure to file a timely tax or information return with respect to any taxable year that may be affected by this ruling. For example, we express no opinion as to whether a taxpayer is entitled to relief from any penalty on the basis that the taxpayer had reasonable cause for failure to file timely any income tax or information returns.

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.

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.

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In accordance with the power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: __________
Richard T. Probst
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: