LLC gets relief to make both a late corporate classification election and a late S corporation election

Plain-English summary

An LLC with more than one owner intended to be taxed as an S corporation.
To get there it needed two elections effective on the same date: first,
Form 8832 to be treated as a corporation (an association) instead of its
default partnership status, and second, Form 2553 to elect S corporation
treatment. It inadvertently failed to file both on time. The company asked
the IRS for two forms of relief: an extension under Treasury Regulation
§ 301.9100-3 for the late Form 8832, and late-S-election relief under Section
1362(b)(5), which lets the IRS treat a late S election as timely when there
was reasonable cause. The IRS granted both, giving the company 120 days to
file the Form 8832 and the Form 2553 effective as of the intended date. The
IRS did not decide whether the company otherwise qualifies as an S
corporation. Business owners setting up an LLC-taxed-as-S-corp structure care
because the two elections work together, and missing either one can leave the
business with an unintended tax classification.

Ruling snapshot

• Question: May an LLC get relief to make both a late entity-classification election and a late S corporation election?
• Outcome: Approved (120-day extension under § 301.9100-3 plus late-S-election relief under § 1362(b)(5))
• Key authorities: Treas. Reg. § 301.7701-3(c); Treas. Reg. §§ 301.9100-1, 301.9100-3; IRC § 1362(a), (b)(5)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201918012 Third Party Communication: None
Release Date: 5/3/2019 Date of Communication: Not Applicable
Index Number: 1362.00-00, 1362.01-00,
1362.01-03, 9100.00-00, Person To Contact:
9100.31-00 ----------, ID No. ----------
Telephone Number:
---------- ----------
---------- Refer Reply To:
---------- CC:PSI:B01
---------- PLR-123589-18
Date:
November 15, 2018

LEGEND:

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

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

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

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

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

This letter responds to a letter dated August 1, 2018, and subsequent correspondence,
submitted on behalf of X requesting that the Service grant X an extension of time under
§ 301.9100-3(c) of the Procedure and Administration Regulations to elect to be treated
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.

Facts

The information submitted states that X was formed in State as a limited liability
company on Date 1. At the time of its formation, more than one individual owned
interests in X. X’s default status was as a partnership for federal tax purposes. X
intended to elect to be treated as an association taxable as a corporation and to elect
be treated an S corporation for federal tax purposes, with both elections effective Date
2.
PLR-123589-18 2

X inadvertently failed to properly and timely file both Form 8832, Entity Classification
Election, and Form 2553, Election by a Small Business Corporation. X is requesting an
extension of time under § 301.9100-3 to make a late entity classification election to be
treated as an association taxable as a corporation for federal tax purposes effective
Date 2. X is also requesting relief to make a late S corporation election under
§ 1362(b)(5) effective Date 2.

X represents that it has acted reasonably and in good faith, that granting relief will not
prejudice the interests of the government, and that it is not using hindsight in making the
election.

Law and Analysis

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. Elections are necessary only when an
eligible entity chooses to be classified initially as other than the default classification or
when an eligible entity chooses to change its classification.

Section 301.7701-3(b)(1) provides that 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 that an eligible entity may elect to be classified
other than as provided under § 301.7701-3(b) by filing Form 8832 with the appropriate
service center. Section 301.7701-3(c)(1)(iii) provides that this election will be effective
on the date specified by the entity on Form 8832 or on the date filed if no such date is
specified. The date specified on Form 8832 cannot be more than 75 days prior to the
date on which the election is filed.

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 301.9100-1(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 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
PLR-123589-18 3

§ 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 interests of the Government.

Section 1362(a) provides that a small business corporation may elect 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 of the third
month of the taxable year.

Section 1362(b)(5) provides that if (A) an election under § 1362(a) is made for any
taxable year after the date prescribed by § 1362(b) for making such election for such
taxable year or no such election is made for any taxable year, and (B) the Secretary
determines that there was reasonable cause for the failure to timely make such election,
the Secretary may treat such an election as timely made for such taxable year.

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 treated as an association taxable as a
corporation for federal tax purposes, effective Date 2. A copy of this letter should be
attached to the Form 8832.

In addition, based solely on the facts submitted and representations made, we conclude
that X has established reasonable cause for failing to make a timely election to be an S
corporation effective Date 2. Accordingly, provided that X makes an election to be an S
corporation by filing a completed Form 2553 effective Date 2, 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 for Date 2.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. Specifically, no opinion is expressed or implied concerning whether X
otherwise qualifies as an S corporation for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that
it may not be used or cited as precedent.
PLR-123589-18 4

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to X’s authorized representative.

                                   Sincerely,



                                   David R. Haglund
                                   David R. Haglund
                                   Branch Chief, Branch 1
                                   (Passthroughs & Special Industries)

Enclosures (2):
Copy of this letter
Copy for 6110 purposes