IRS grants an LLC late-election relief to be taxed as a corporation and then as an S corporation

Plain-English summary

A single-owner limited liability company (LLC) wanted to be taxed as an S corporation. That takes two steps: first the LLC must elect to be treated as a corporation (an association) by filing Form 8832, then it must elect S corporation status by filing Form 2553. The LLC intended to do both, effective on specific dates, but it inadvertently failed to file either form on time. It asked the IRS for two forms of relief: an extension of time under the section 301.9100-3 rules to make the late corporation election, and relief under section 1362(b)(5) to file a late S corporation election. The IRS granted both. It found the LLC met the section 9100 standards (acted reasonably and in good faith, and relief will not prejudice the government) and had reasonable cause for missing the S election deadline. The LLC gets 120 days to file both forms, effective on the intended dates, so the elections are treated as timely. The letter stresses it does not decide whether the LLC actually qualifies as an S corporation, only that it may make the elections late.

Ruling snapshot

• Question: May the LLC get late-election relief to be classified as a corporation (Form 8832) and to elect S corporation status (Form 2553)?
• Outcome: Approved (120 days to file both elections, treated as timely)
• Key authorities: IRC § 1362(a), (b)(1), (b)(5); Treas. Reg. § 301.7701-3; § 301.9100-1 through -3

Full text (IRS public release)

 Internal Revenue Service                                  Department of the Treasury
                                                           Washington, DC 20224

 Number: 202236003                                         Third Party Communication: None
 Release Date: 9/9/2022                                    Date of Communication: Not Applicable
 Index Number: 1362.00-00, 1362.01-03,
               7701.00-00, 7701.02-00,                     Person To Contact:
               9100.31-00                                  --------------------, ID No. -----------------
                                                           Telephone Number:
 ---------------------                                     --------------------
 --------------------------------------                    Refer Reply To:
 -------------------------------------------               CC:PSI:B01
 -------------------------------                           PLR-109685-22
 ----------------------------------                        Date:
                                                           June 14, 2022




                                               LEGEND

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

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

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

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



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

This letter responds to a letter dated February 4, 2022, and subsequent
correspondence, submitted on behalf of X by its authorized representative, requesting
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 (Code).

                                               FACTS

X was formed as a limited liability under the laws of State on Date 1. X intended to be
treated as a corporation effective Date 1. In addition, X was eligible to elect S
corporation treatment effective Date 2. However, X inadvertently failed to properly and
timely file both Forms 8832, Entity Classification Election, and Form 2553, Election by a
Small Business Corporation.

                             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 15 th day 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. 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. 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 an 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), or to change its classification, by filing a
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 filled 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 and cannot be more
than 12 months after the date of 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 no 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) defines the term "regulatory election" as an election
whose due date is prescribed by a regulation published in the Federal Register or a
revenue ruling, revenue procedure, notice, or announcement published in the Internal
Revenue Bulletin.

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 the election. 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 regulator elections that do
not meet the requirements of § 301.9100-2.

Under § 301.9100-3, a request for relief will be granted when the taxpayer provides
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) granting relief will not prejudice the interests of the government.

                                    CONCLUSION

Based solely on the information submitted and the 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 1. A copy of this letter should be
attached to the Form 8832.

In addition, based solely on the facts submitted and the 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 with the
appropriate service center within 120 days from the date of this letter and elects to be
treated as an S Corporation effective Date 2, then such election will be treated as timely
made. A copy of this letter should be attached to the Form 2553.

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 and the regulations thereunder. Specifically, no opinion is expressed or implied
concerning whether X otherwise qualifies as an S corporation for federal tax purposes.
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.

We express no opinion concerning the assessment of any interest, additions to tax,
additional amounts, or penalties for failure to file a timely 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.

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.

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

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent
to X's authorized representatives.



                                        Sincerely,


                                        Holly Porter
                                        Associate Chief Counsel
                                        (Passthroughs & Special Industries)




                                    By: ______/s/____________________
                                        Caroline E. Hay
                                        Senior Technician Reviewer, Branch 1
                                        Office of the Associate Chief Counsel
                                        (Passthroughs & Special Industries)



Enclosure (1):
      Copy of this letter for § 6110 purposes



cc: