LLC gets more time to elect to be disregarded after being acquired by a corporation

Plain-English summary

An LLC had elected to be an S corporation, which meant it was automatically treated as a corporation (an "association") for tax purposes. A single corporation then bought all of the LLC's units in two transactions. The new owner wanted the LLC treated as a disregarded entity (part of its owner) by filing a check-the-box election on Form 8832, but that election was never filed on time. The owner asked the IRS for an extension under § 301.9100-3 and represented that relief would not lower total taxes across the affected years. The IRS found the taxpayer acted reasonably and in good faith and that relief would not harm the government, so it granted 120 days to file the Form 8832 to have the LLC disregarded as of the intended effective date, conditioned on filing consistent (including amended) returns.

Ruling snapshot

• Question: May the LLC get an extension to file a late election to be classified as a disregarded entity?
• Outcome: Approved; 120-day extension to file Form 8832, subject to filing consistent returns
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202429007 Third Party Communication: None
Release Date: 7/19/2024 Date of Communication: Not Applicable
Index Number: 9100.31-00, 7701.00-00
Person To Contact:
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------------------------------ Telephone Number:
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-------------------------------- Refer Reply To:
CC:PSI:01
PLR-119797-23
Date:
April 05, 2024

                                                LEGEND

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

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

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

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

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

Date 4 = ---------------------

Dear ---------------

This letter responds to a letter dated September 15, 2023, and subsequent
correspondence, submitted on behalf of X, 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 classified as disregarded entity for federal tax purposes.

                                                 FACTS

According to the information submitted, X, organized as a limited liability company
under the laws of State on Date 1, made an election to be treated as an S corporation
effective on Date 1. Under § 301.7701-3(c)(1)(v)(C), X is treated as having made an
PLR-119797-23 2

election to be classified as an association taxable as a corporation for federal tax
purposes effective Date 1. In two transactions on Date 2 and Date 3, a single
corporation acquired all outstanding units of X.

X represents that it intended to elect to change its classification to a disregarded entity
effective Date 4. However, X failed to timely file Form 8832, Entity Classification
Election, electing to be classified as a disregarded entity effective Date 4.

X represents that granting relief would not result in a lower tax liability in the aggregate
for all taxable years affected by the election than there would have been if the election
had been timely made.

                               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 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. 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 301.7701-3(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 under
§ 301.7701-3 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
PLR-119797-23 3

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 301.7701-3(g)(1)(iii) provides that if an eligible entity classified as an
association elects under § 301.7701-3(c)(1)(i) to be disregarded as an entity separate
from its owner, the following is deemed to occur: the association distributes all of its
assets and liabilities to its single owner in liquidation of the association.

Section 301.7701-3(g)(3)(i) provides that an election under § 301.7701-3(c)(1)(i) that
changes the classification of an eligible entity for federal tax purposes is treated as
occurring at the start of the day for which the election is effective. Any transactions that
are deemed to occur under § 301.7701-3(g) as a result of a change in classification are
treated as occurring immediately before the close of the day before the election is
effective.

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.

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 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 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.
PLR-119797-23 4

                                  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 treated as a disregarded entity
effective Date 4. A copy of this letter should be attached to the Form 8832.

This ruling is contingent on X and its owner filing, within 120 days of 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, no opinion is expressed concerning the federal
tax consequences of the facts described above under any other provision of the Code.
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 on 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.
PLR-119797-23 5

In accordance with the power of attorney on file with this office, we are sending copies
of this letter to X’s authorized representatives.

                                               Sincerely,

                                               Holly Porter
                                               Associate Chief Counsel
                                               (Passthroughs & Special Industries)



                                         By:
                                               Jennifer N. Keeney
                                               Senior Counsel, Branch 1
                                               Office of the Associate Chief Counsel
                                               (Passthroughs & Special Industries)

Enclosure
Copy of letter for § 6110 purposes

cc: