Guidance on Late Entity Classification Elections

By Alistair M. Nevius, J.D.

On September 3, the IRS released Rev. Proc. 2009-41, which gives eligible entities guidance on how to obtain relief when they make a late entity classification election. The relief is available for 3 years and 75 days after the requested effective date of the eligible entity’s classification election.

Under the check-the-box regulations, a business that is not classified as a corporation can elect for federal tax purposes to be treated as an association or a partnership, or (if the business has a single owner) it can elect to be disregarded as an entity separate from its owner. The business makes the election by filing Form 8832, Entity Classification Election, with the IRS Service Center designated on the form. If the business is required to file a federal tax or information return for the tax year the election is made, it must also attach a copy of the form to its tax return for the year it wants to make the election.

In Rev. Proc. 2009-41, the IRS extends the date for entities to make an initial classification election or to change a classification election. To be eligible for the extended late election relief, the business must have failed to obtain its desired classification solely because it failed to timely file Form 8832, and either it has not filed a federal tax or information return for the first year in which the election was intended because the due date has not passed or it has filed all its required federal returns (since the time of the intended election) consistent with the classification it intended to obtain.

To make a late election under the provisions of the revenue procedure, an eligible entity must file a completed Form 8832 with the applicable IRS Service Center within 3 years and 75 days of the effective date of the election, along with a statement explaining the reason for its failure to make the election on time. The IRS will notify the entity if the late election relief is being granted.

Entities that want to obtain late election relief through a letter ruling request (because they do not meet the eligibility requirements in the revenue procedure) must include this representation with the request:

All required U.S. tax and information returns of the entity (or, if the entity was not required to file any such returns under the desired classification, then all required U.S. tax and information returns of each affected person as defined in Section 4.02 of Rev. Proc. 2009-39) were filed timely or within 6 months of the due date of the respective return (excluding extensions) as if the entity classification election had been in effect on the requested date. No U.S. tax or information returns were filed inconsistently with those described in the prior sentence.

Rev. Proc. 2009-41 is effective September 28, 2009, for requests pending with the IRS on that date and requests made after that date.

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