IRS Revenue Procedure
2002-15

Code Sec. 7701



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26 CFR 601.201: Rulings and determination letters.
(Also Part I, sections 7701; 301.7701-1; 301.7701-2, 301.7701-3,
301.9100-1, 301.9100-3.)


REV. PROC. 2002-15

SECTION 1. PURPOSE

This revenue procedure provides guidance under section 7701 of the
Internal Revenue Code for a newly formed entity that requests relief for a
late initial classification election filed within 6 months of the due date
of the initial election.


SECTION 2. BACKGROUND

.01 Section 7701 provides definitions for business entities and their
owners for federal tax purposes.

.02 Section 301.7701-1(a) of the Procedure and Administration
Regulations provides general rules for the classification of various
organizations for federal tax purposes. Whether an organization is an
entity separate from its owners for federal tax purposes is a matter of
federal tax law and does not depend on whether the organization is
recognized as an entity under local law. Section 301.7701-1(b) provides
that the classification of organizations that are recognized as separate
entities is determined under section 301.7701-2, section 301.7701-3, and
section 301.7701-4 unless a provision of the Code provides for special
treatment of that organization.

.03 Section 301.7701-2(a) provides that a business entity is any entity
recognized for federal tax purposes (including an entity with a single
owner that may be disregarded as an entity separate from its owner) that
is not properly classified as a trust or otherwise subject to special
treatment under the Code. A business entity with two or more members is
classified for federal tax purposes as either a corporation or a
partnership. A business entity with only one owner is classified as a
corporation or is disregarded as an entity separate from its owner.
Section 301.7701-2(b) sets forth those business entities that are
considered corporations for federal tax purposes.

.04 Section 301.7701-3 provides that a business entity not classified
as a corporation under section 301.7701-2(b)(1), (3), (4), (5), (6), (7),
or (8) (an eligible entity) is able to choose its classification for
federal tax purposes. Under section 301.7701-3(b)(1) a domestic eligible
entity is, in the absence of an election otherwise, a partnership if it
has two or more members, and disregarded as an entity separate from its
owner if it has a single owner. Section 301.7701-3(b)(2) provides
generally that, in the absence of an election otherwise, a foreign
eligible entity is (a) a partnership if it has two or more members and at
least one member does not have limited liability, (b) an association if
all its members have limited liability, or (c) disregarded as an entity
separate from its owner if it has a single owner that does not have
limited liability.

.05 Section 301.7701-3(c)(1)(i) provides generally that an eligible
entity may elect to be classified other than as provided under section
301.7701-3(b), or to change its classification, by filing Form 8832,
Entity Classification Election, with the service center designated on Form
8832. Section 301.7701-3(c)(1)(iii) provides that an election made under
section 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 date is specified on the
election form. The effective date specified on Form 8832 cannot be more
than 75 days prior to the date on which the election is filed. If an
election specifies an effective date more than 75 days prior to the date
on which the election is filed, it will be effective 75 days prior to the
date it was filed.

.06 Under section 301.9100-1(c), the Commissioner may grant a
reasonable extension of time to make a regulatory election or certain
statutory elections under all subtitles of the Code, except subtitles E,
G, H, and I, if the taxpayer demonstrates to the satisfaction of the
Commissioner that the taxpayer acted reasonably and in good faith, and
that granting the relief will not prejudice the interests of the
government. Section 301.9100-1(b) defines the term "regulatory election"
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. An entity
classification election made pursuant to section 301.7701-3(c) is a
regulatory election.

.07 The Commissioner has authority under section 301.9100-1 and section
301.9100-3 to grant an extension of time if a taxpayer fails to file a
timely election under section 301.7701-3(c). Section 301.9100-3 provides
that the Commissioner will grant an extension of time when the taxpayer
provides the evidence to establish to the satisfaction of the Commissioner
that the taxpayer has acted reasonably and in good faith, and the grant of
relief will not prejudice the interests of the government.


SECTION 3. SCOPE

This revenue procedure provides a simplified method to request relief
for certain late initial classification elections. An initial
classification election is an election by an eligible entity newly formed
under local law to be classified effective on the date of its formation as
other than the default classification provided under sections
301.7701-3(b)(1) and (2). This procedure is in lieu of the private letter
ruling procedure that is used to obtain relief for a late entity
classification election under section 301.9100-1 through section
301.9100-3. Accordingly, user fees do not apply to corrective action under
this revenue procedure. An entity that is not eligible for relief under
this revenue procedure, or is denied relief by the service center, may
request relief by applying for a private letter ruling. The procedural
requirements for requesting a private letter ruling are described in Rev.
Proc. 2002-1 (2002-1 I.R.B. 1) (or its successor). This revenue procedure
does not apply to a subsequent election to change the classification of an
entity.


SECTION 4. RELIEF FOR LATE INITIAL CLASSIFICATION ELECTIONS

.01 ELIGIBILITY FOR RELIEF. An entity is eligible for relief under
section 4.03 of this revenue procedure for a late initial classification
election if the following requirements are met: (1) the entity failed to
obtain its desired classification as of the date of its formation solely
because Form 8832 was not filed timely under section 301.7701-3(c)(1); (2)
the due date for the tax return of the entity's default classification
(excluding extensions) for the taxable year beginning with the date of the
entity's formation has not passed; and (3) the entity has reasonable cause
for its failure to timely make the initial entity classification election.

.02 PROCEDURAL REQUIREMENTS FOR REQUESTING RELIEF. Within 6 months of
the original due date for the initial classification election (within 6
months and 75 days of the entity's formation), the newly formed entity
must file with the applicable service center (determined in accordance
with the instructions to Form 8832) a completed Form 8832, signed in
accordance with section 301.7701-3(c)(2). The Form 8832 must state at the
top of the document "FILED PURSUANT TO REV. PROC. 2002-15." Attached to
the Form 8832 must be a statement explaining the reason for the failure to
file a timely initial classification election.

.03 RELIEF FOR LATE ENTITY CLASSIFICATION ELECTIONS. Upon receipt of a
completed application requesting relief under this revenue procedure, the
Internal Revenue Service will determine whether the requirements for
granting additional time have been satisfied and will notify the entity of
the result of its determination.


SECTION 5. EFFECTIVE DATE

This revenue procedure generally applies to all ruling requests pending
in the national office on February 11, 2002, the date of publication of
this revenue procedure in the Internal Revenue Bulletin, and to requests
for relief received thereafter.


SECTION 6. PAPERWORK REDUCTION ACT

The collection of information contained in this revenue procedure has
been reviewed and approved by the Office of Management and Budget in
accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control
number 1545-1771.

An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless the collection of
information displays a valid OMB control number.

The collection of information in this revenue procedure is in Section
4.01. This information is required to be submitted to the applicable
service center in order to obtain relief for late initial classification
elections. This information will be used to determine whether the
eligibility requirements for obtaining relief have been met. The
collection of information is required to obtain a benefit. The likely
respondents are business or other for-profit institutions.

The estimated total annual reporting burden is 100 hours.

The estimated annual burden per respondent varies from .5 hours to 1.5
hours, depending on individual circumstances, with an estimated average of
1 hour. The estimated number of respondents is 100.

The estimated annual frequency of responses is one.

Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and tax
return information are confidential, as required by 26 U.S.C. 6103.


SECTION 7. DRAFTING INFORMATION

The principal authors of this revenue procedure are Beverly M. Katz of
the Office of Associate Chief Counsel (Passthroughs and Special
Industries) and David J. Sotos of the Office of Associate Chief Counsel
(International). For further information regarding this revenue procedure
contact Ms. Katz at (202) 622-3050 (not a toll-free call).

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