An LLC gets 120 extra days to make a late "check-the-box" election to be disregarded

Plain-English summary

A single-member limited liability company had filed a valid "check-the-box" election (Form 8832) to be taxed as a corporation, effective on its formation date. Its sole owner later decided the company should instead be disregarded as a separate entity, meaning its income is reported directly by the owner, but it missed the deadline to make that new election. The company asked the IRS for more time under the § 301.9100-3 relief rules. Ordinarily an entity cannot change its classification again within 60 months of a prior election, but that limit does not apply when the earlier election was effective on the date of formation. The IRS found the taxpayer acted reasonably and in good faith and that relief would not prejudice the government, so it granted a 120-day extension to file the late election. Relief is conditioned on the company and its owner filing consistent returns for all open years.

Ruling snapshot

• Question: Should the LLC get an extension of time to make a late election to be disregarded as a separate entity, despite the 60-month limit on changing classification?
• Outcome: Approved (120-day extension granted under § 301.9100-3; 60-month limit inapplicable because the prior election was on formation)
• Key authorities: Treas. Reg. §§ 301.7701-3(c), 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202218023 Third Party Communication: None
Release Date: 5/6/2022 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:

-------------------- --------------, ID No. -----------------
------------------------------- Telephone Number:
-------------------------- --------------------
----------------------- Refer Reply To:
-------------------------------------- CC:PSI:B01
PLR-117699-21
Date:
January 14, 2022

LEGEND:

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

Y = ------------------------------------------------------------------------------------------
-----------------------

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

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

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

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

This letter responds to a letter dated August 20, 2021, 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 to under § 301.7701-3 to
be treated as an entity disregarded as separate from its owner for federal tax purposes.

                                                Facts

According to the information submitted and representations within, X was formed as a
limited liability company under the laws of State on Date 1. Following advice provided,
X timely filed a valid election on Form 8832, Entity Classification Election, to be treated
as an association taxable as a corporation effective Date 1. Since X’s formation, Y has
wholly-owned X. X now seeks relief to make a late entity classification election to be
treated as an entity disregarded as separate from Y, effective Date 2.
PLR-117699-21 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) provides that except as provided in § 301.7701-3(b)(3), 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, 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, in part, 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 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 on which the election is filed.

Section 301.7701-3(c)(1)(iv) provides, in part, that if an eligible entity makes an election
under section 301.7701-3(c)(1)(i) to change its classification, the entity cannot change
its classification by election again during the sixty months succeeding the effective date
of the election. However, the Commissioner may permit the entity to change its
classification by election within the sixty months if more than fifty percent of the
ownership interests in the entity as of the effective date of the subsequent election are
owned by persons that did not own any interests in the entity on the filing date or on the
effective date of the entity's prior election. An election by a newly formed eligible entity
that is effective on the date of formation is not considered a change for purposes of this
paragraph (c)(1)(iv).

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 a 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 standards the Commissioner
PLR-117699-21 3

will use to determine whether to grant an extension of time for regulatory 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 (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 facts submitted and representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Because the initial election was
made on X’s formation date, the sixty-month limitation does not apply, and X may make
a subsequent election on Date 2.

Accordingly, X is granted an extension of time of 120 days from the date of this letter to
file Form 8832 with the appropriate service center to elect to be classified as an entity
disregarded as separate from its owner for federal tax purposes, effective Date 2. A
copy of this letter should be attached to the Form 8832.

This ruling is contingent on X and its owners filing within 120 days of the date of this
letter all required original or amended information and tax returns for all open years
consistent with the requested relief. A copy of this letter should be attached to any
such returns.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. Specifically, no opinion is expressed or implied concerning whether X is
otherwise eligible to make the election.

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 the 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) provides
that it may not be used or cited as precedent.
PLR-117699-21 4

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to X’s authorized representative.

                                    Sincerely,

                                    Holly Porter
                                    Associate Chief Counsel
                                    (Passthroughs & Special Industries)


                                    __________________________
                                    Laura C. Fields
                                    Chief, Branch 1
                                    (Passthroughs & Special Industries)

Enclosure:
Copy for 6110 purposes

cc: