Rp 2002-59

26 CFR 601.201: Rulings and determinations
letters.
(Also Part I, §§ 7701; 301.7701–1, 301.7701–2,
301.7701–3, 301.9100–1, 301.9100–3.)

Rev. Proc. 2002–59
SECTION 1. PURPOSE
This revenue procedure provides guidance under § 7701 of the Internal Revenue Code for an entity newly formed under
local law that requests relief for a late initial classification election filed by the due
date of the entity’s first federal tax return
(excluding extensions).
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 § 301.7701–2, § 301.7701–3,
and § 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 § 301.7701–2(b)(1), (3), (4),

2002-39 I.R.B.

(5), (6), (7), or (8) (an eligible entity) is able
to choose its classification for federal tax
purposes. Under § 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 § 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 § 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 § 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 § 301.7701–
3(c) is a regulatory election.
.07 The Commissioner has authority under § 301.9100–1 and § 301.9100–3 to grant

615

an extension of time if a taxpayer fails to
file a timely election under § 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.
.08 On February 11, 2002, the Service
and Treasury issued Rev. Proc. 2002–15,
2002–6 I.R.B. 490, which provides guidance under § 7701 for certain newly formed
entities to request relief for a late initial classification election filed within 6 months of
the due date of the initial election and prior
to the due date (excluding extensions) of
the tax return for the entity’s default classification.
SECTION 3. SCOPE
This revenue procedure modifies and supersedes Rev. Proc. 2002–15 by, in particular, extending the time for filing a late
initial entity classification election from six
months to the due date for the federal tax
return (excluding extensions) of the entity’s desired classification for the year of the
entity’s formation. The tax return due date
for an entity desiring to be disregarded as
an entity separate from its owner is the due
date for its sole owner’s tax return for the
taxable year in which the entity was formed.
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 its
default classification under § 301.7701–
3(b)(1) and (2). This procedure is in lieu of
the letter ruling procedure that is used to
obtain relief for a late entity classification election under § 301.9100–1 through
§ 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 letter ruling. The procedural requirements for requesting a 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.

September 30, 2002

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, newly formed
under local law (whether or not the entity
is relevant within the meaning of
§ 301.7701–3(d)), failed to obtain its desired classification as of the date of its formation solely because Form 8832 was not
filed timely under § 301.7701–3(c)(1); (2)
the due date of the federal tax return for the
entity’s desired classification (excluding extensions) for the taxable year beginning with
the date of the entity’s formation has not
passed (regardless of whether a federal tax
return is actually required to be filed); and
(3) the entity has reasonable cause for its
failure to timely make the initial entity classification election.
.02 Procedural Requirements for Requesting Relief. On or before the due date
of the first federal tax return (excluding extensions) of the entity’s desired classification, 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 § 301.7701–3(c)(2). The
Form 8832 must state at the top of the
document “FILED PURSUANT TO REV.
PROC. 2002–59.” 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 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 September 30, 2002, the
date of publication of this revenue procedure in the Internal Revenue Bulletin, and
to requests for relief received thereafter.

September 30, 2002

SECTION 6. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2002–15 is modified and superseded.
SECTION 7. 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 4.02. 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 8. DRAFTING
INFORMATION
The principal author of this revenue procedure is Beverly M. Katz of the Office of
Associate Chief Counsel (Passthroughs and
Special Industries). For further information regarding this revenue procedure, contact Ms. Katz at (202) 622–3050 (not a tollfree call).

616

26 CFR 601.105: Examination of returns and
claims for refund, credit, or abatement; determination of correct tax liability.
(Also Part I, Sections 62, 162, 170, 213, 217, 274,
1016; 1.62–2, 1.162–17, 1.170A–1, 1.213–1,
1.217–2, 1.274–5, 1.1016–3.)

Rev. Proc. 2002–61
SECTION 1. PURPOSE
This revenue procedure updates Rev.
Proc. 2001–54, 2001–48 I.R.B. 530, by providing optional standard mileage rates for
employees, self-employed individuals, or
other taxpayers to use in computing the deductible costs of operating an automobile
for business, charitable, medical, or moving expense purposes. This revenue procedure also provides rules under which the
amount of ordinary and necessary expenses
of local travel or transportation away from
home that are paid or incurred by an employee will be deemed substantiated under § 1.274–5 of the Income Tax
Regulations when a payor (the employer,
its agent, or a third party) provides a mileage allowance under a reimbursement or
other expense allowance arrangement to pay
for such expenses. Use of a method of substantiation described in this revenue procedure is not mandatory and a taxpayer may
use actual allowable expenses if the taxpayer maintains adequate records or other
sufficient evidence for proper substantiation.
SECTION 2. SUMMARY OF
STANDARD MILEAGE RATES
.01 Standard mileage rates.
(1) Business (section 5 below) 36.0 cents
per mile
(2) Charitable (section 7 below) 14 cents
per mile
(3) Medical and Moving (sec- 12 cents
tion 7 below)
per mile

.02 Determination of standard mileage
rates. The business, medical, and moving
standard mileage rates reflected in this revenue procedure are based on an annual
study of the fixed and variable costs of operating an automobile conducted on behalf of the Internal Revenue Service by an
independent contractor, and the charitable

2002-39 I.R.B.