[Federal Register Volume 70, Number 98 (Monday, May 23, 2005)]
[Rules and Regulations]
[Pages 29452-29453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-10165]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 9203]
RIN 1545-BC32


Deemed Election To Be an Association Taxable as a Corporation for 
a Qualified Electing S Corporation

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations that deem certain 
eligible entities that file timely S corporation elections to have 
elected to be classified as associations taxable as corporations. These 
regulations affect certain eligible entities filing timely elections to 
be S corporations on or after July 20, 2004.

[[Page 29453]]


DATES: Effective Date: These regulations are effective July 20, 2004.

FOR FURTHER INFORMATION CONTACT: Rebekah A. Myers, (202) 622-3050 (not 
a toll free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to 26 CFR part 301. On July 20, 
2004, temporary regulations (TD 9139) relating to entity classification 
elections for entities that elect to be S corporations under section 
1362(a) were published in the Federal Register (69 FR 43317). A notice 
of proposed rulemaking (REG-131786-03) cross-referencing the temporary 
regulations also was published in the Federal Register on July 20, 
2004. No public hearing was requested or held. No written or electronic 
comments responding to the notice of proposed rulemaking were received. 
The proposed regulations are adopted by this Treasury decision, and the 
corresponding temporary regulations are removed.
    Section 301.7701-3(a) provides that an eligible entity with two or 
more owners may elect to be classified as an association (and thus a 
corporation under Sec.  301.7701-2(b)(2)) or a partnership, and an 
eligible entity with a single owner may elect to be classified as an 
association or to be disregarded as an entity separate from its owner. 
Section 301.7701-3(b) provides that, unless the entity elects 
otherwise, a domestic eligible entity is a partnership if it has two or 
more owners or is disregarded as an entity separate from its owner if 
it has a single owner. Section 301.7701-3(c) describes the time and 
place for filing an entity classification election. Section 301.7701-
3(c)(1)(i) provides that an eligible entity may elect to be classified 
as other than its default classification or to change its 
classification by filing Form 8832, ``Entity Classification Election'', 
with the service center designated on the form.
    A taxpayer whose default classification is a partnership or a 
disregarded entity may seek to be classified as an S corporation. For S 
elections that were filed prior to the effective date of these 
regulations, the taxpayer was required to elect to be classified as an 
association under Sec.  301.7701-3(c)(1)(i) by filing Form 8832 and to 
elect to be an S corporation under section 1362(a) by filing Form 2553, 
``Election by a Small Business Corporation.'' These regulations 
simplify these paperwork requirements by eliminating, in certain cases, 
the requirement that the entity elect to be classified as an 
association. Instead, an eligible entity that makes a timely and valid 
election to be classified as an S corporation will be deemed to have 
elected to be classified as an association taxable as a corporation.
    If the S election and the entity classification election are filed 
late, the entity may need to submit a ruling request under Sec.  
301.9100-3 to file a late entity classification election and under 
section 1362(b)(5) to file a late S corporation election. However, Rev. 
Proc. 2004-48 (2004-32 I.R.B. 172) provides relief for these entities 
in some cases.

Effective Dates

    These final regulations apply to elections to be an S corporation 
filed on or after July 20, 2004. However, eligible entities that timely 
filed S elections before July 20, 2004 may also rely on the provisions 
of the regulation.

Special Analysis

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore a regulatory assessment is not required. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations, and because the 
regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Internal Revenue Code, the 
notice of proposed rulemaking that preceded these regulations was 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Drafting Information

    The principal author of this regulation is Rebekah A. Myers, Office 
of Associate Chief Counsel (Passthroughs and Special Industries). 
However, other personnel from the IRS and Treasury Department 
participated in their development.

List of Subjects in 26 CFR Part 301

    Employment taxes, Estate and excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 301 is amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 301.7701-3 is amended by revising paragraphs 
(c)(1)(v)(C) and (h)(3) to read as follows:


Sec.  301.7701-3  Classification of certain business entities.

* * * * *
    (c) * * *
    (1) * * *
    (v) * * *
    (C) S corporations. An eligible entity that timely elects to be an 
S corporation under section 1362(a)(1) is treated as having made an 
election under this section to be classified as an association, 
provided that (as of the effective date of the election under section 
1362(a)(1)) the entity meets all other requirements to qualify as a 
small business corporation under section 1361(b). Subject to Sec.  
301.7701-3(c)(1)(iv), the deemed election to be classified as an 
association will apply as of the effective date of the S corporation 
election and will remain in effect until the entity makes a valid 
election, under Sec.  301.7701-3(c)(1)(i), to be classified as other 
than an association.
* * * * *
    (h) * * *
    (3) Deemed elections for S corporations. Paragraph (c)(1)(v)(C) of 
this section applies to timely S corporation elections under section 
1362(a) filed on or after July 20, 2004. Eligible entities that filed 
timely S elections before July 20, 2004 may also rely on the provisions 
of the regulation.

Sec.  301.7701-3T  [Removed]

0
Par. 3. Section 301.7701-3T is removed.

Mark E. Mattews,
Deputy Commissioner for Services and Enforcement.
    Approved: May 12, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary for Tax Policy.
[FR Doc. 05-10165 Filed 5-20-05; 8:45 am]
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