LLC receives 120 days to correct mistaken corporate classification

Plain-English summary

A two-owner limited liability company intended to be taxed as a partnership and filed its federal returns on that basis. It mistakenly submitted Form 8832 electing treatment as an association taxable as a corporation. The IRS found that the company satisfied the standards for discretionary late-election relief. It granted 120 days to file Form 8832 electing partnership classification effective on the intended date. The relief is conditioned on the company and both owners filing all required original or amended returns for every affected year consistently with partnership treatment.

Ruling snapshot

• Question: May the LLC correct its mistaken corporate election and elect partnership classification effective on the intended date?
• Outcome: Approved, with 120 days to file Form 8832 and all affected consistent returns.
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201807009
Release Date: 2/16/2018
Index Numbers: 7701.00-00, 9100.31-00

                                                              Person To Contact:

------------------------ -----------------------, ID No. -------------------
------------------------ ---------------------------------------------------
------------------------------ Telephone Number:
------------------------------ ----------------------
Refer Reply To:
CC:PSI:B03 – PLR-127692-17
Date:
November 20, 2017

                                                LEGEND

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

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

B = ---------------

State = -------

D1 = ---------------------------

D2 = ----------------------

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

  This letter responds to a letter dated July 17, 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 to be classified as a
partnership for federal tax purposes.

                                                 FACTS
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    The information submitted discloses that X is a State limited liability company

that was formed on D1. X represents that its owners, A and B, intended X to be
classified as a partnership for federal tax purposes effective D2. Taxpayer further
represents that it has filed its federal tax returns consistent with being classified as a
partnership. However, X mistakenly filed a Form 8832, Entity Classification Election, to
be classified as an association taxable as a corporation.

                               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; (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, except as provided in

§ 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 can not be more than 75 days prior to the date on which the
election is filed and can not be more than 12 months after the date on which the election
is filed.

   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 (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 an
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election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions 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 under § 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 the taxpayer
acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.

                                  CONCLUSION

    Based solely on the facts and representations submitted, we conclude that X has

satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Consequently, X is
granted an extension of time of one hundred twenty (120) days from the date of this
letter to elect under § 301.7701-3 to be classified as a partnership effective D2. X must
file Form 8832 within the extension period with the appropriate service center, with a
copy of this letter attached.

    This ruling is contingent on X and its owners filing within 120 days of the date of

this letter all required federal income tax returns (including amended returns) for all
years consistent with the requested relief. A copy of this letter should be attached to
any such returns.

    We express no opinion concerning the assessment of any interest, additions to

tax, additional amounts, or penalties for failure to file a timely income 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.

   Except for the specific ruling above, we express or imply no opinion concerning

the federal tax consequences of the facts of this case 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.

  This ruling is directed only to the taxpayer requesting it. According to

§ 6110(k)(3) of the Code, this ruling may not be used or cited as precedent.

    Under a power of attorney on file with this office, we are sending a copy of this

letter to X’s authorized representatives.
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   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 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.

                                        Sincerely,

                                        Associate Chief Counsel
                                        (Passthroughs & Special Industries)



                                     By:_/s/____________________________
                                        Richard T. Probst
                                        Senior Technician Reviewer, Branch 3
                                        Office of the Associate Chief Counsel
                                        (Passthroughs & Special Industries)

Enclosures: Copy of this letter
Copy for § 6110 purposes