Entity gets late relief to be taxed as a corporation and to elect S corporation status

Plain-English summary

An eligible business entity wanted two things effective on the same date: to be classified as an association taxable as a corporation (rather than a partnership or disregarded entity), and to be taxed as an S corporation, the pass-through regime that avoids corporate-level income tax. To get there, the entity needed to file Form 8832 (the check-the-box classification election) and Form 2553 (the S corporation election), but it never properly and timely filed either one. It asked the IRS for two overlapping forms of relief: a 9100 extension under Treas. Reg. § 301.9100-3 for the late classification election, and late-election relief under IRC § 1362(b)(5), which lets the IRS treat a blown S corporation election as timely if there was reasonable cause. The IRS granted both. The entity has 120 days from the date of the letter to file Form 8832 electing association status and Form 2553 electing S status, both effective the intended date. The IRS did not decide whether the entity otherwise qualifies as an S corporation. Anyone who set up an LLC intending S corporation treatment but missed the election deadlines would recognize this common cleanup path.

Ruling snapshot

• Question: Should the entity get late relief to elect corporate (association) classification and S corporation status effective the intended date?
• Outcome: Approved (120 days to file Form 8832 and Form 2553; S election treated as timely for reasonable cause)
• Key authorities: IRC § 1362(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: 201852004                                             Third Party Communication: None
Release Date: 12/28/2018                                      Date of Communication: Not Applicable
Index Numbers: 1362.01-03, 9100.31-00
                                                              Person To Contact:
---------------------                                         ----------------------, ID No. ------------------
-------------------------------------------------------       Telephone Number:
----------------------                                        ----------------------
------------------------------------------------              Refer Reply To:
                                                              CC:PSI:B03
                                                              PLR-109850-18
                                                              Date: September 24, 2018

LEGEND

X                  = -------------------------
----------------------------------------------
-------------
State              = ------------

Date1             = ------------------

Date2             = ----------------------

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

This letter responds to a letter dated July 15, 2018, 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(c) to
be classified as an association taxable as a corporation for federal tax purposes, and
relief to file a late S corporation election under § 1362(b)(5) of the Internal Revenue
Code ("Code").

                                                  Facts

The information submitted states that X is an eligible entity that was formed on Date1
under the laws of State. X intended to be classified as an association taxable as a
corporation and to elect to be an S corporation for federal tax purposes, with both
elections effective Date2. However, X failed to properly and timely file Form 8832, Entity
Classification Election, and Form 2553, Election by a Small Business Corporation.

                                         Law

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 as provided in § 301.7701-3. An eligible
entity with a single owner can elect to be classified as an association (and thus a
corporation under § 301.7701-2(b)(2)) 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 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. 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
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 301.9100-1(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 Code except subtitles E, G,
H, and I.

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.

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 the taxpayer
acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.

Section 1362(a)(1) provides that, except as provided in § 1362(g), a small business
corporation may elect, in accordance with the provisions of § 1362, to be an S
corporation.

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)(3) provides that, if (A) a small business corporation makes an election
under § 1362(a) for any taxable year, and (B) the election is made after the 15th day of
the third month of the taxable year and on or before the 15th day of the third month of
the following taxable year, then the election shall be treated as made for the following
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, then 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 X has
satisfied the requirements of §§ 301.9100-1 and 301.9100-3. 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 classified as an association taxable as a
corporation for federal tax purposes, effective Date2. A copy of this letter should be
attached to the Form 8832 filed with the service center.

In addition, we conclude that X has established reasonable cause for failing to make a
timely election to be an S corporation effective Date2. Accordingly, provided that X
makes an election to be an S corporation by filing a completed Form 2553 effective
Date2, along with a copy of this letter, with the appropriate service center within 120
days from the date of this letter, then such election will be treated as timely made. A
copy of this letter should be attached to the Form 2553 filed with the service center.

Except as specifically set forth above, we express or imply no opinion concerning the
federal tax consequences of the facts described above under any other provision of the
Code. Specifically, we express or imply no opinion concerning whether X otherwise
qualifies as an S corporation for federal tax purposes.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

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 the support of the ruling request, it is subject to verification on examination.

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

                                             Sincerely,

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

Enclosures: Copy of this letter
            Copy of this letter for § 6110 purposes