Entity elections: new guidance extends relief for late elections.

• Author: Josephs, Stuart R.
• Position: FedTax

Rev. Proc. 2009-41 (Internal Revenue Bulletin 2009-39, Sept. 28, 2009) provides guidance under Internal Revenue Code See. 7701 for an eligible entity that requests relief for a late entity classification election filed with the applicable IRS campus (service center) within three years and 75 days of the requested effective date of the entity's election.

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Rev. Proc. 2009-41 also provides guidance for eligible entities that do not qualify for relief under this revenue procedure and are required to request a letter ruling to request relief for a late entity classification election.

Background

Regs. Sec. 301.7701-3(c)(l)(iii) provides that an election under Regs. Sec. 301.7701-3(c)(I)(i) will be effective on the date specified by the entity on IRS Form 8832, Entity Classification Election, or on the date filed if no effective date is specified on this form.

A specified effective date cannot be more than 75 days before the date on which the election is filed and cannot be more than 12 months after the date on which the election is filed.

Rev Proc. 2002-59 provided guidance for entities newly formed under local law to request relief for a late initial classification election filed by the due date for the first federal tax return, excluding extensions, of the entity's desired classification for the year of the entity's formation.

Extended Relief

Rev. Proc 2009-41 supersedes Rev. Proc. 2002-59 by extending late-entity classification relief to both initial classification elections and changes in classification elections, along with extending the time for filing late elections to within three years and 75 days of the requested effective date of the eligible entity's classification.

For entities satisfying the eligibility requirements described below, Rev. Proc. 2009-41 is the exclusive means for obtaining relief for a late entity classification election and is in lieu of the letter ruling process used to obtain relief for late elections under Regs. Sees. 301.9100-1 and -3. Thus, no user fees apply to action under Rev. Proc. 2009-41.

An eligible entity may qualify for alternative relief, under Regs. Sec. 301.7701(3(c)(l)(v)(C), which treats an entity as having elected corporate classification when it timely elects to be an S corporation. Rev. Procs. 2004-48 and 2007-62 contain special rules for late S corp elections and late entity classification elections. (See "Late Elections Relief,'" December 2007 California CPA, Page 16.)

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