IRS grants late corporate classification and S election

Plain-English summary

A domestic LLC intended to be an S corporation from a specified effective date but failed to file Form 2553 properly and on time. It nevertheless filed returns consistently with S corporation treatment from that date. The IRS found that the LLC acted reasonably and in good faith, did not use hindsight, and satisfied the standards for late entity-classification relief. It granted 120 days to file Form 8832 electing corporate status retroactively. The IRS also found reasonable cause under Section 1362(b)(5), treated the S election as timely, and required Form 2553 to be filed within the same 120-day period.

Ruling snapshot

• Question: Could the LLC obtain retroactive corporate classification and a late S corporation election?
• Outcome: Approved.
• Key authorities: IRC §§ 1361 and 1362(b)(5); Treas. Reg. §§ 301.7701-3 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202130004 Third Party Communication: None
Release Date: 7/30/2021 Date of Communication: Not Applicable
Index Number: 1362.00-00, 1362.01-03,
9100.00-00, 9100.31-00 Person To Contact:
--------------------------, ID No. ----------------
---------------------------------------------- Telephone Number:
---------------------------- --------------------
----------------------------------- Refer Reply To:
------------------------------------ CC:PSI:B01
PLR-117191-20

                                                           Date:
                                                           February 01, 2021

LEGEND

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

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

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

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

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

This responds to a letter dated July 1, 2020, and subsequent correspondence,
submitted on behalf of X by X's authorized representative, requesting that the Service
grant X an extension of time under § 301.9100-3 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

According to the information submitted, X was formed as a limited liability company
under the laws of State on Date 1. X was eligible to elect S corporation treatment
effective Date 2; however, X inadvertently failed to properly and timely file Form 2553,
Election by a Small Business Corporation. It is represented that X intended to be an S
corporation effective Date 2. Since Date 2, X has filed tax returns consistent with S
corporation treatment. X represents that it has acted reasonably and in good faith, that
PLR-117191-20 2

granting relief will not prejudice the interests of the government, and that it is not using
hindsight in making the late election.

LAW AND ANALYSIS

Section 1361(a) provides that the term “S corporation” means, with respect to any
taxable year, a small business corporation for which an election under § 1362(a) is in
effect for such year.

Section 1362(a) generally provides that a small business corporation may elect to be an
S corporation.

Section 1362(b) provides when an S corporation election will be effective. Generally, if
an S corporation election is made within the first two and one half months of a
corporation's taxable year, then that corporation will be treated as an S corporation
beginning the year in which the election is made.

Section 1362(b)(3) provides that if an S corporation election is made after the first two
and one half months of a corporation's taxable year, then that corporation will not be
treated as an S corporation until the taxable year after the year in which the S election is
made.

Section 1362(b)(5) provides that if (1) an election under § 1362(a) is made for any
taxable year after the date prescribed by § 1362 for making the election or no § 1362(a)
election is made for any taxable year; and (2) 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 such taxable year.

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.
PLR-117191-20 3

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
§ 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.

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, Entity
Classification Election, 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.

Additionally, based solely upon the facts submitted and representations made, we
conclude that X has established reasonable cause for not making a timely S election
and is eligible for relief under § 1362(b)(5). Accordingly, X's S corporation election will
be treated as timely made for its taxable year that began on Date 2.

This ruling is contingent on X filing Form 2553, Election by a Small Business
Corporation, with an effective date of Date 2, with the appropriate Service Center within
120 days from the date of this ruling. 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.
PLR-117191-20 4

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

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,



                                  Joy C. Spies

                                  Joy C. Spies, Senior Technician Reviewer
                                  Branch 1
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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

cc: