LLC receives relief for late corporate-classification and S corporation elections

Plain-English summary

An LLC intended to be classified as an association taxable as a corporation and to elect S corporation status from the same effective date, but it filed neither Form 8832 nor Form 2553. Based on the submitted facts and representations, the IRS found that the company met the requirements for discretionary relief on the entity-classification election and had reasonable cause for the late S corporation election. The company received 120 days to file Form 8832 for corporate classification and a completed Form 2553 for S corporation status, both with the requested effective date. The IRS did not determine whether the company otherwise qualified as an S corporation and expressed no opinion on penalties connected with late returns.

Ruling snapshot

• Question: May an LLC make late elections to be treated as a corporation and as an S corporation from the same requested effective date?
• Outcome: approved; both elections must be filed within 120 days
• Key authorities: IRC § 1362(a), (b)(5); 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: 202327001                                        Third Party Communication: None
 Release Date: 7/7/2023                                   Date of Communication: Not Applicable
 Index Numbers: 1362.00-00, 1362.01-00,
               1362.01-03, 7701.00-00,                    Person To Contact:
               9100.31-00                                 -----------------------, ID No. -------------------
                                                          ---------------------------------------------------
 -------------------------------                          Telephone Number:
 ----------------------------------------                 --------------------
 ----------------------------------                       Refer Reply To:
 ---------------------------------                        CC:PSI:3
 ----------------------------------                       PLR-120031-22
                                                          Date:
                                                          April 07, 2023




Legend

 Company = ----------------------------------------------------------------------------------------------
           -----------------------

 State          = ---------

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

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



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

       This letter responds to a letter dated September 7, 2022, and subsequent
correspondence, submitted on behalf of Company requesting that the Service grant
Company an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations to file an election to be classified as an association taxable as a corporation
for federal tax purposes under § 301.7701-3, and relief to file a late S corporation
election under § 1362(b)(5) of the Internal Revenue Code (Code).

                                                FACTS

       According to the information submitted, Company was formed as a limited liability
company under the laws of State on Date 1. Company intended to elect to be classified
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 2. However, Company failed
PLR-120031-22                                  2

to file Form 2553, Election by a Small Business Corporation, including the deemed
election to be classified as an association taxable as a corporation under § 301.7701-
3(c)(1)(v)(C) or any separate Form 8832, Entity Classification Election, effective Date 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 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), 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 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 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
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
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.

        Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3
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) the
grant of relief will not prejudice the interests of the Government.

      Section 1362(a) provides that a small business corporation may elect to be an S
corporation.
PLR-120031-22                                 3

        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 15th 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 (determined without regard to § 1362(b)(3)) 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, the Secretary may treat the election as
timely made for the taxable year (and § 1362(b)(3) shall not apply).

                                      CONCLUSION

       Based solely on the facts submitted and representations made, we conclude that
Company has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result,
Company 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 2. 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 Company has established reasonable cause for failing to make a timely
election to be an S corporation effective Date 2 and is eligible for relief under
§ 1362(b)(5). Accordingly, provided that Company makes an election to be an S
corporation by filing a completed Form 2553 effective Date 2, with the appropriate
service center within 120 days from the date of this letter, then such election shall be
treated as timely made. A copy of this letter should be attached to the Form 2553.

       Except as expressly provided herein, we express or imply no opinion concerning
the federal 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 Company is otherwise eligible to be an S corporation for federal tax purposes.
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.
PLR-120031-22                                            4

      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 requested rulings, it is subject to verification on
examination.

      These rulings are directed only to the taxpayer requesting them. Section
6110(k)(3) of the Code provides that they may not be used or cited as precedent.

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


                                                Sincerely,


                                                Associate Chief Counsel
                                                (Passthroughs & Special Industries)



                                  By:           ________________________________
                                                Mary Beth Carchia
                                                Senior Technician Reviewer, Branch 3
                                                Office of Associate Chief Counsel
                                                (Passthroughs & Special Industries)



Enclosure:
      Copy of this letter for § 6110 purposes



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