Late relief lets an LLC change from a corporation to a partnership for tax purposes

Plain-English summary

An LLC had elected to be an S corporation, which under the check-the-box rules also meant it was automatically treated as an association taxable as a corporation. The LLC later wanted to switch to being taxed as a partnership and even filed its returns as if it had made that change (including the deemed liquidation that comes with switching from corporation to partnership). But it never filed the Form 8832 needed to actually make the election. It asked the IRS for relief under the § 301.9100-3 regulations, which allow a late regulatory election when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. The IRS granted 120 days to file the Form 8832 electing partnership classification as of the intended date. This is a routine fix that aligns an entity's legal tax classification with how it has actually been reporting.

Ruling snapshot

• Question: Should an LLC get more time to file a late election to be classified as a partnership rather than a corporation?
• Outcome: approved
• Key authorities: 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: 202452001                                       Third Party Communication: None
 Release Date: 12/27/2024                                Date of Communication: Not Applicable
Index Number: 9100.31-00, 7701.00-00
                                                         Person To Contact:
-------------------------------                          ------------------------, ID No. -----------------
------------------------                                 Telephone Number:
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----------------------------                             Refer Reply To:
                                                         CC:PSI:B03
                                                         PLR-105252-24
                                                         Date:
                                                         September 16, 2024




LEGEND

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

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

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

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

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

A            = -----------------
               -------------------------

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


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

       This letter responds to a letter dated March 15, 2024, and subsequent
correspondence, submitted on behalf of X by X’s authorized representative, 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 a partnership
for federal tax purposes.

                                                 FACTS

     According to the information submitted, X was formed as a limited liability
company under the laws of State on Date 1. X elected to be an S corporation effective
Date 2. Under § 301.7701-3(c)(1)(v)(C), X is treated as having made an election to be
classified as an association taxable as a corporation for federal tax purposes effective
Date 1. X represents that it intended to elect to change its classification to a partnership
effective Date 3. However, X failed to timely file Form 8832, Entity Classification
Election, electing to be classified as a partnership.

       X and its members have filed returns consistent with X‘s intended election to be
treated as a partnership including taking into account the deemed liquidation of X under
§ 301.7701-3(g)(1)(ii) in the taxable year ending Date 4.

                                   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), (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 owners.

       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; (ii) disregarded as an entity separate from its owners if it has a
single member.

       Section 301.7701-3(c)(1)(i) provides, in part, that, except as provided
§ 301.7701-3(c)(1)(iv) and (v), 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 that if an eligible entity makes an election
under § 301.7701-3(c)(1)(i) to change it classification (other than an election made by
an existing entity to change it classification as of the effective date of § 301.7701-3), 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 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 § 301.7701-3(c)(1)(v).

       Section 301.7701-3(v)(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
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)(ii) provides that if an eligible entity classified as an
association elects under § 301.7701-3(c)(1)(i) to be classified as a partnership, the
following is deemed to occur: The association distributes all of its assets and liabilities
to its shareholders in liquidation of the association, and immediately thereafter, the
shareholders contribute all of the distributed assets and liabilities to a newly formed
partnership.

        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 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 (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 regulatory elections that
do not meet the requirement 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 interest of the Government.


                                       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, we
grant X 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 for federal
tax purposes effective Date 3. A copy of this letter should be attached to the Form
8832.

       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. 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.

      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.

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

Enclosure:
      Copy of this letter for §6110 purposes

 cc:
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