PLR 200109019: Corporation may retain federal corporate classification after conversion to LLC

Plain-English summary

A corporation planned to convert into a limited liability company under state law. The resulting LLC represented that it would timely elect to be taxed as a corporation, effective on the conversion date. Based on those representations, the IRS ruled that the conversion would not cause either entity to be classified as something other than a corporation for federal tax purposes. The ruling depended on a proper and timely entity classification election. The IRS did not decide whether the conversion was a reorganization under IRC § 368.

Ruling snapshot

• Question: Would conversion from a state law corporation to an LLC change the entity's federal corporate classification?
• Outcome: Approved, provided the LLC properly and timely elects corporate classification effective on conversion.
• Key authorities: Treas. Reg. §§ 301.7701-2 and 301.7701-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200109019
Washington, DC 20224
Release Date: 3/2/2001
Index Number: 7701.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:B01 PLR-114130-00
Date:
Nov 29, 2000

Legend

X =

State =

D1 =

This responds to the July 18, 2000 letter, submitted on behalf of X, requesting a ruling that the conversion of X from a corporation to a limited liability company (LLC) will not cause X or LLC to be classified as an entity other than a corporation for federal tax purposes.

FACTS

X was incorporated under State law in D1. X intends to convert to a LLC under State law. X represents that LLC will timely file an election to be classified as an association taxable as a corporation for federal tax purposes. X also represents that the election will specify the date of conversion as the effective date of the election.

LAW AND ANALYSIS

Section 301.7701-3(a) of the Procedure and Administration Regulations provides that a “business entity” that is not classified as a corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can elect to be classified as an association taxable as a corporation.

Section 301.7701-3(b) provides default classifications for eligible entities that do not make an election. To elect to be classified other than as provided in § 301.7701-

2
CC:PSI:B01 PLR-114130-00

3(b), an eligible entity must file Form 8832, Entity Classification Election, with the designated service center. An election can be effective on the date specified on the Form 8832 or on the date filed if no such date is specified. Section 301.7701- 3(c)(1)(iii). The effective date cannot be more than 75 days prior to the date on which the election is filed and cannot be more than12 months after the date on which the election is filed. Section 301.7701-3(c)(1)(iii).

CONCLUSION

Based solely on the representations made and the information submitted, and provided that LLC properly and timely elects to be classified as a corporation for federal tax purposes effective the date of conversion, X’s conversion to LLC will not cause X or LLC to be classified as an entity other than a corporation for federal tax purposes.

Except as specifically set forth above, we express no opinion concerning the federal tax consequences of the transaction described above under any other provision of the Internal Revenue Code. In particular, no opinion is expressed on whether the conversion is a reorganization under § 368.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file with this office, a copy of this ruling is being sent to your authorized representative.

Sincerely,

/s/ Dianna K. Miosi
Dianna K. Miosi
Chief, Branch 1
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes