LLC granted extensions to elect corporate (association) status and late S corporation status

Plain-English summary

An LLC intended, from its formation date, both to be treated as a corporation (an "association taxable as a corporation") and to be taxed as an S corporation, but it never filed the required Form 2553 or Form 8832 on time, so neither election took effect. It asked the IRS for two forms of relief: a section 301.9100-3 extension to make the corporate-classification election, and section 1362(b)(5) reasonable-cause relief for the late S corporation election. The IRS found the LLC acted reasonably and in good faith and that granting relief would not prejudice the government, so it gave the LLC 120 days to file both a Form 8832 (effective the formation date) and a Form 2553 (also effective that date). If the LLC files within that window, both elections will be treated as timely made. This is a common cleanup for small LLCs that meant to be S corporations from day one but missed the paperwork: fixing the entity classification and the S election together restores the intended tax status.

Ruling snapshot

• Question: May the LLC receive a § 301.9100-3 extension to elect association (corporate) classification and § 1362(b)(5) relief for a late S election, both effective its formation date?
• Outcome: Approved (both granted; 120 days to file Forms 8832 and 2553)
• Key authorities: IRC § 1362(b)(5); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Treas. Reg. § 301.7701-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202240014 Third Party Communication: None
Release Date: 10/7/2022 Date of Communication: Not Applicable
Index Number: 1362.01-03, 9100.31-00
Person To Contact:
----------------------------- --------------------, ID No. -----------------
---------------------------- Telephone Number:
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---------------------------- Refer Reply To:
------------------------------------------------------------ CC:PSI:B01
PLR-107557-22

                                                            Date:
                                                            July 11, 2022




                                                    LEGEND

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

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

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

This letter is in response to your letter submitted March 25, 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 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 was formed as a limited liability company under
the laws of State on Date 1. 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 Date 1. However, X failed to timely file Form 2553, Election by a
Small Business Corporation, including the deemed election to be classified as an
association taxable as a corporation under § 301.7701-3(c)(1)(v)(C) of the Income Tax
Regulations or any separate Form 8832, Entity Classification Election effective Date 1.
PLR-107557-22 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 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 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 and cannot be more
than 12 months after the date of which the election is 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
PLR-107557-22 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 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 1. Accordingly, provided that X makes an election
to be an S corporation by filing a completed Form 2553 effective Date 1 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.

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.
PLR-107557-22 4

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 representative.

                                    Sincerely,


                                    Holly Porter
                                    Associate Chief Counsel
                                    (Passthroughs & Special Industries)



                              By: _____________________________
                                  Jennifer N. Keeney
                                  Senior Counsel, Branch 1
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes

cc: