Entity receives late corporate and S corporation election relief

Plain-English summary

A domestic multi-member eligible entity intended to be treated as an S corporation from the date it was formed. It did not timely file either Form 8832 to elect association status or Form 2553 to elect S corporation status. The IRS found that the entity met the regulatory-relief standards for the classification election and had reasonable cause for the late S election. It granted 120 days to file Form 8832 and treated the S corporation election as timely from the requested date. The relief is conditioned on filing Form 2553 and all required returns for open years within the same 120-day period, consistently with the requested treatment. The ruling does not independently determine whether the entity otherwise qualifies for either election.

Ruling snapshot

• Question: May the entity make late corporate-classification and S corporation elections effective from its formation date?
• Outcome: Approved, with a 120-day filing and consistent-return condition
• Key authorities: IRC § 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: 202326002                                             Third Party Communication: None
 Release Date: 6/30/2023                                       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:B03
                                                               PLR-103301-23
                                                               Date:
                                                               April 06, 2023



RE: --------------------


Legend

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


 Date         =     ------------------


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


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

       This letter is in response to your request dated February 1, 2023, submitted on
behalf of X by its authorized representative, requesting (1) an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to file an election under
§ 301.7701-3 to be classified as an association taxable as a corporation for federal tax
purposes and (2) relief under § 1362(b)(5) of the Internal Revenue Code (Code) to treat
its S corporation election as timely made.

                                                       FACTS

        The information submitted states that X was formed on Date under the laws of
State. X represents that as of Date, it was a domestic entity eligible to elect to be
classified as a corporation for federal tax purposes. X also represents that it intended to
be treated as an S corporation effective Date. However, X did not timely file Form 8832,
Entity Classification Election, or Form 2553, Election by a Small Business Corporation.
PLR-103301-23                                2



                                  LAW AND ANALYSIS

Entity Classification Election

        Section 301.7701-3(a) provides, in part, 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 as provided in
§ 301.7701-3. An eligible entity with at least two members can elect to be classified as
either an association (and thus a corporation under § 301.7701-2(b)(2)) or a
partnership.

     Section 301.7701-3(b)(1)(i) provides that unless the entity elects otherwise, a
domestic eligible entity is a partnership if it has two or more members.

        Section 301.7701-3(c)(1)(i) provides, in part, that an eligible entity may elect to
be classified other than as provided in § 301.7701-3(b) by filing Form 8832 with the
service center designated on the Form 8832. Under § 301.7701-3(c)(1)(iii), 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 on which the election is filed.

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

        Under § 301.9100-3(a), 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.

S Corporation Election

      Section 1362(a) provides that, except as provided in § 1362(g), a small business
corporation may elect, in accordance with § 1362, 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 day of
the third month of the taxable year.
PLR-103301-23                                 3


       Section 1362(b)(3) provides that if (A) a small business corporation makes an
election under § 1362(a) for any taxable year, and (B) such election is made after the
15th day of the third month of the taxable year and on or before the 15th day of the third
month of the following taxable year, then such election is treated as made for the
following taxable year.

       Section 1362(b)(5) provides that if (A) an election under § 1362(a) is made for
any taxable year (determined without regard to § 1362(b)(3)) after the date prescribed
by § 1362(b) for making the election for the taxable year or no § 1362(a) election is
made for any taxable year, and (B) the Secretary determines that there was reasonable
cause for the failure to timely make the election, then the Secretary may treat such
election as timely made for the taxable year (and § 1362(b)(3) shall not apply).

                                      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
with the appropriate service center to elect to be classified as an association taxable as
a corporation for federal tax purposes effective Date. A copy of this letter should be
attached to the Form 8832.

      In addition, we conclude that X has established reasonable cause for failing to
make a timely S corporation election and is eligible for relief under § 1362(b)(5).
Accordingly, X’s S corporation election will be treated as timely made effective Date.

        This ruling is contingent on X filing Form 2553 with an effective date of Date with
the appropriate service center within 120 days from the date of this letter. A copy of this
letter should be attached to the Form 2553 filed with the service center.

        Further, this ruling is contingent on X and its owners filing within 120 days from
the date of this letter all required returns for all open years consistent with the requested
relief. A copy of this letter should be attached to any such returns.

       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. 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.

       The rulings 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 request for rulings, it is subject to verification on examination.
PLR-103301-23                                 4


       These rulings are directed only to the taxpayer requesting it. Section 6110(k)(3)
of the Code provides that they may not be used or cited as precedent.

        Pursuant to the power of attorney on file with this office, we are sending a copy of
this letter to X’s authorized representative.


                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)

                                          /s/ Margaret Burow
                               By:    _______________________________
                                      Margaret Burow
                                      Senior Counsel, Branch 3
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)

Enclosure:
      Copy for § 6110 purposes




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