LLC receives extra time to elect partnership classification

Plain-English summary

A limited liability company had previously elected S corporation treatment but later intended to change its federal tax classification to a partnership. It failed to file Form 8832 by the intended effective date. The company represented that it acted reasonably and in good faith and that late relief would not prejudice the government. The IRS found that the company met the standards in Treasury Regulation section 301.9100-3 and granted 120 days from the ruling date to file the entity-classification election. The ruling did not address any other federal tax consequences of the change.

Ruling snapshot

• Question: May the LLC make a late election to be classified as a partnership for federal tax purposes?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201801010                                              Third Party Communication: None
Release Date: 1/5/2018                                         Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
                                                               Person To Contact:
---------------------------------------                        ----------------------------,
------------------------------------------------------         ID No. ------------------
---------------------------------------                        Telephone Number:
----------------------------------                             ----------------------
                                                               Refer Reply To:
                                                               CC:PSI:B01
                                                               PLR-123884-17
                                                               Date:
                                                               October 05, 2017

LEGEND

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

State             =        ---------

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

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

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

      This responds to a letter dated July 31, 2017, 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(c) to be treated as a
partnership for federal tax purposes.

FACTS

        According to the information submitted, X is a limited liability company formed
under the laws of State on Date 1. X is not classified as a corporation under
§ 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8). X made a timely election to be treated
as an S corporation effective Date 1. X intended to elect to be treated as a partnership
for federal tax purposes effective Date 2. However, X failed to timely file Form 8832,
Entity Classification Election, to be treated as a partnership for federal tax purposes
effective Date 2.

PLR-123884-17                                  2

       X represents that it acted reasonably and in good faith. X also represents that
granting the relief requested will not prejudice the interests of the government.

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. An eligible entity with at least two
members can elect to be classified as either an association 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.

       Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of
time to make a regulatory election, or a statutory election (but no more than six months
except in the case of a taxpayer who is abroad), under all subtitles of the Internal
Revenue Code, except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term
“regulatory election” as including an election whose due date is prescribed by a
regulation published in the Federal Register, or a revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin.

       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 an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2. Requests for relief under § 301.9100-3 will
be granted when the taxpayer provides evidence to establish that the taxpayer acted
reasonably and in good faith, and that granting relief will not prejudice the interests of
the government.

CONCLUSION

       Based solely on the facts submitted and the representations made, we conclude
that the requirements of § 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 make an election to be
treated as a partnership for federal tax purposes effective Date 2. X should make the
election by filing a properly executed Form 8832 with the appropriate service center. A
copy of this letter should be attached to the form.

       Except as specifically set forth above, we express no opinion concerning the
federal tax consequences of the facts described above under any other provision of the
Internal Revenue Code.

PLR-123884-17                                  3

      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 X’s authorized representatives.

                                           Sincerely,

                                           Associate Chief Counsel
                                           (Passthroughs & Special Industries)

                                           David R. Haglund

                                      By: ________________________________
                                          David R. Haglund
                                          Chief, Branch 1
                                          Office of Associate Chief Counsel
                                          (Passthroughs & Special Industries)

Enclosures (2)

       Copy of this letter
       Copy of this letter for section 6110 purposes

cc: