Late entity classification and S corporation elections allowed

Plain-English summary

A limited liability company intended from its formation date to be classified as a corporation and taxed as an S corporation. It inadvertently failed to properly and timely file Form 2553. The IRS found that the company met the regulatory relief standards and had reasonable cause for the late S election. It granted 120 days to file Form 8832 for corporate classification and a completed Form 2553 for S corporation status, both effective on the intended date. The ruling does not decide whether the company otherwise qualifies as an S corporation.

Ruling snapshot

• Question: May the limited liability company make late corporate classification and S corporation elections?
• Outcome: Approved, with 120 days to file Forms 8832 and 2553
• Key authorities: IRC § 1362; Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202435015 Third Party Communication: None
Release Date: 8/30/2024 Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
1362.00-00, 1362.01-00, Person To Contact:
1362.01-03 -----------------------------, ID No. -------------
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---------------------- Telephone Number:
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--------------------------------- Refer Reply To:
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------------------------------------------------------- PLR-125167-23
Date:
May 29, 2024

LEGEND

X = --------------------------------------------------------------------------------------------------
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State = -------------

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

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

This letter responds to a letter dated December 16, 2023, and subsequent
correspondence, submitted on behalf of X by its authorized representatives, 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.

FACTS

The information submitted states that X was formed as a limited liability company under
the laws of State on Date 1. X represents that it was eligible and intended to be treated
as an S corporation effective Date 1. However, X inadvertently failed to properly and
timely file a Form 2553, Election by a Small Business Corporation.

PLR-125167-23 2

LAW AND ANALYSIS

Section 1362(a)(1) 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.

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 such election, the Secretary may treat such an election as
timely made for the taxable year (and § 1362(b)(3) shall not apply).

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, and 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.

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, in part, 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 Form 8832 with the IRS Service Center designated on the form.

Section 301.7701-3(c)(1)(iii) provides, in part, that an election made under § 301.7701-
3(c)(1)(i) will be effective on the date specified by the entity on Form 8832 or on the
date filed if no such date is specified on the election form. The effective date specified
on Form 8832 can not be more than 75 days prior to the date on which the election is
filed and can not be more than 12 months after the date on which the election is filed. If

PLR-125167-23 3

an election specifies an effective date more than 75 days prior to the date it was filed, it
will be effective 75 days prior to the date it was filed.

Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of time
under the rules set forth in §§ 301.9100-2 and 301.9110-3 to make a regulatory
election, or a statutory election (but no more than six months except in the case of a
taxpayer who is abroad), under all subtitles of the Internal Revenue Code except
subtitles E, G, H, and I. Section 301.9100-1(b) defines a “regulatory lection” 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 an election. Section
301.9100-2 provides automatic extensions of time for making certain elections. Section
301.9100-3 provides extensions 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 under § 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 (i) the
taxpayer acted reasonably and in good faith, and (ii) 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 on the facts submitted and representations made, 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, 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.

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.

PLR-125167-23 4

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,


                                                Associate Chief Counsel
                                                (Passthroughs & Special Industries)



                                          By: ____________________________
                                              Joy Spies
                                              Senior Technician Reviewer, Branch 1
                                              Office of Associate Chief Counsel
                                              (Passthroughs & Special Industries)

Enclosure:
Copy for § 6110 purposes

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