IRS Eases Late “Check-The-Box” Election Procedures

Rev. Proc. 2002-59 permits a newly formed entity an automatic extension to file a late initial entity-classification (“check-the-box”) election up to the due date of the entity's first Federal return (excluding extensions). It modifies and supersedes Rev. Proc. 2002-15 by extending the time from six months to the Federal return's due date.

Discussion

For an entity seeking treatment as a disregarded entity, the return due date is the due date of its sole owner's return for the tax year in which the entity was formed. An election under Rev. Proc. 2002-59 must be effective as of the entity's formation date. The procedure does not apply to a subsequent election to change classification.

A newly formed entity may request relief under Rev. Proc. 2002-59 to file a late initial check-the-box election if:

1. It failed to obtain a classification as of the formation date, solely because it did not timely file Form 8832, Entity Classification Election, under Regs. Sec. 301.7701-3(c)(1);

2. The due date of the Federal return for the tax year beginning with the date of the entity's formation (excluding extensions) has not passed (regardless of whether the entity was actually required to file a return); and

3. It has reasonable cause for failing to make a timely initial election.

If the entity meets the three requirements, it may file Form 8832 on or before the Federal return's due date (excluding extensions). It must file the form with the appropriate IRS service center campus (as set forth in the form's instructions) and include the caption “FILED PURSUANT TO REV. PROC. 2002-59.” Further, the entity must attach a reasonable-cause statement to the form, explaining the reason for failing to file a timely initial-classification election. On receipt of the request for relief, the IRS will notify the taxpayer as to whether it will grant an extension.

Conclusion

In replacing the letter ruling process under Regs. Sec. 301.9100-1 through -3, Rev. Proc. 2002-59 is intended to provide an easier method for eligible taxpayers to request relief for a late initial check-the-box election. Thus, there is no user fee for a taxpayer who meets the procedure's requirements. An entity not eligible for relief under Rev. Proc. 2002-59, or denied relief, may still request Regs. Sec. 301.9100 relief by requesting a letter ruling.

From Margaret M. Richardson, Washington, DC