LLC received 120 days for late corporate-classification and S elections

Plain-English summary

A domestic limited liability company intended to be taxed as an S corporation from its formation date but did not properly and timely file Form 2553. Because an LLC must first be treated as a corporation before an S election can apply, it requested relief for both a late Form 8832 corporate-classification election and a late S election. The company had filed returns consistently with S corporation treatment and represented that it acted reasonably and in good faith without using hindsight. The IRS granted 120 days to file Form 8832 electing association status from formation and Form 2553 electing S status from the same date. The IRS did not decide whether the company otherwise qualified as an S corporation.

Ruling snapshot

• Question: Could the LLC make late elections to be classified as a corporation and then treated as an S corporation from its formation date?
• Outcome: approved, 120 days to file Forms 8832 and 2553
• Key authorities: IRC § 1362(b)(5); Treas. Reg. §§ 301.7701-3, 301.9100-1, and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202249001                                              Third Party Communication: None
 Release Date: 12/9/2022                                        Date of Communication: Not Applicable
 Index Number: 1362.00-00, 9100.00-00
                                                                Person To Contact:
 ---------------------------------------------                  ------------------------, ID No. ------------------
 ------------------------------------------------------------   ----------------------------------------------------
 ----------------------                                         Telephone Number:
 ------------------------                                       --------------------
 ---------------------------------                              Refer Reply To:
                                                                CC:PSI:B01
                                                                PLR-104148-22
                                                                Date:
                                                                August 30, 2022




                                                   LEGEND

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

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

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



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


This responds to a letter dated January 28, 2022, 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 1; 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 1. Since Date 1, X has filed tax returns consistent with S
corporation treatment. X represents that it has acted reasonably and in good faith, that
PLR-104148-22                                  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-104148-22                                 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 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 1. 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 1. This ruling is contingent on X filing Form 2553, Election by a
Small Business Corporation, with an effective date of Date 1, 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-104148-22                                  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,

                                  Holly Porter
                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)


                                  By: _____________________
                                      Laura C. Fields
                                      Branch Chief, Branch 1
                                      Office of the Associate Chief Counsel




Enclosure
      Copy for § 6110 purposes




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