Late corporate-classification and S corporation elections allowed under 9100 relief

Plain-English summary

A limited liability company that wants to be taxed as an S corporation has to clear two hurdles: it must be treated as a corporation (which an LLC can achieve by filing Form 8832, or automatically through a timely Form 2553), and it must elect S status on Form 2553. Here an LLC that was eligible to be an S corporation from a specific date inadvertently failed to properly and timely file its Form 2553. It asked the IRS for relief. The IRS granted a 120-day extension under the § 301.9100-3 relief rules to file Form 8832 electing to be treated as an association (corporation) effective the intended date, and separately found reasonable cause under § 1362(b)(5) to treat a late S corporation election as timely, provided the LLC files a completed Form 2553 within 120 days. The ruling does not decide whether the entity otherwise qualifies as an S corporation.

Ruling snapshot

• Question: May an LLC get an extension to elect corporate classification and relief to make a late S corporation election, both effective the intended date?
• Outcome: Approved (120-day extension for Form 8832 plus § 1362(b)(5) reasonable-cause relief for Form 2553)
• Key authorities: IRC § 1362(a), (b)(5); Treas. Reg. § 301.7701-3; Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202201002 Third Party Communication: None
Release Date: 1/7/2022 Date of Communication: Not Applicable
Index Number: 9100.31-00; 1362.01-03
Person To Contact:
------------------------------- ----------------------, ID No. -------------------
------------------------------------------ Telephone Number:
---------------- --------------------
------------------------------------- Refer Reply To:
CC:PSI:03
PLR-106150-21
Date:
October 12, 2021

                                            LEGEND

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

State = ---------

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

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

   This letter responds to a letter dated February 18, 2021, and subsequent

correspondence, submitted on behalf of X 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

    The information submitted states that X was formed in State as a limited liability

company. X was eligible to elect S corporation treatment Date 1. However, X
inadvertently failed to properly and timely file Form 2553, Election by a Small Business
Corporation. 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 late election.
PLR-106150-21 2

                               LAW AND ANALYSIS

  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.

    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
PLR-106150-21 3

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 1. 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 1. Accordingly, provided that X makes an election
to be an S corporation by filing a completed Form 2553 effective Date 1, along with a
copy of this letter, with the appropriate service center within 120 days from the date of
this letter, such election will be treated as timely made for Date 1.

  The rulings contained in this letter are 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 request for rulings, it is subject to verification on
examination.

   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.
PLR-106150-21 4

  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.

                                             Sincerely,

                                             Associate Chief Counsel
                                             (Passthroughs and Special Industries)



                                      By:    ______________________________
                                             Richard T. Probst
                                             Senior Technician Reviewer, Branch 3
                                             Office of Associate Chief Counsel
                                             (Passthroughs & Special Industries)

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

cc: