PLR 200652018: New ownership supports early change from disregarded entity to corporation

Plain-English summary

A foreign entity had elected disregarded treatment and was acquired by a domestic group within 60 months of its earlier classification change. The new owner intended corporate treatment from a redacted date but inadvertently missed the Form 8832 deadline. The IRS consented to another classification election within the usual 60-month restriction based on the represented ownership change. It granted 60 days from the letter to file Form 8832 for association treatment taxable as a corporation from the intended date. The ruling left other federal tax consequences unaddressed.

Ruling snapshot

• Question: May the entity change classification before 60 months have passed and obtain relief for a missed election deadline?
• Outcome: Approved: early classification-change consent and 60-day election extension.
• Key authorities: Treas. Reg. §§ 301.7701-3(c)(1)(iv) and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200652018
Release Date: 12/29/2006
Index Number: 9100.31-00

Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC: PSI: B02 – PLR-123787-06
Date:
August 28, 2006

X = ------------------------
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Y = ----------------------------------
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Z = --------------------------
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Country = ------------

Date 1 = ----------------------

Date 2 = ----------------------

Date 3 = --------------------------

Date 4 = --------------------------

Dear ----- -----------:

This letter responds to a letter dated April 11, 2006, submitted on behalf of X, requesting rulings under §§ 301.7701-3(c)(1)(iv) and 301.9100-3 of the Procedure and Administration Regulations. Specifically, the Service’s consent is requested to change X’s classification from a disregarded entity to an association taxable as a corporation, effective Date 4.

The information submitted states that X was formed under the laws of Country on Date 1. X represents that X is a foreign entity eligible to elect to be treated as an association taxable as a corporation. X is a wholly-owned subsidiary of Y, a Country limited liability company. Z, a domestic corporation, acquired Y and X, through a

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subsidiary entity, on Date 3. Y had previously made an election, within sixty months prior to Date 4, for X to be treated as a disregarded entity for federal tax purposes. Upon Z’s acquisition of X, it was intended that X would be treated as an association taxable as a corporation effective Date 4. The Service’s consent is now requested under
§ 301.7703-3(c)(1)(iv) to change its classification. Z, who owned all of X on Date 4 (the intended effective date of the proposed classification change) had no ownership interest in X on Date 2. Due to inadvertence, X failed to file a timely Form 8832, Entity Classification Election, electing to treat X as an association taxable as a corporation effective Date 4.

Section 301.7701-3(a) 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 its classification for federal tax purposes. A "business entity" is any entity recognized for federal tax purposes that is not properly classified as a trust under § 301.7701-4 or otherwise subject to special treatment under the Internal Revenue Code.

Section 301.7701-3(b)(2)(i) provides that except as provided in § 301.7701- 3(b)(3), unless the entity elects 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; or (B) An association if all 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.

Section 301.7701-3(c)(1)(i) provides that to elect to be classified other than as provided in § 301.7701-3(b), an eligible entity must file Form 8832 with the designated service center. Section 301.7701-3(c)(1)(iii) provides that an entity classification election must be filed on Form 8832 and can be effective up to seventy-five (75) days prior to the date the form is filed or up to twelve (12) months after the date on which the form is filed.

Section 301.7701-3(c)(1)(iv) provides that, if an eligible entity makes an election under § 301.7701-3(c)(1)(i) to change its classification, the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election. However, the Commissioner may permit the entity to change its classification by election within the sixty months if more than fifty percent of the ownership interests in the entity as of the effective date of the subsequent election are owned by persons that did not own any interests in the entity on the filing date or on the effective date of the entity's prior election.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term "regulatory election" as an election whose due date is prescribed by a

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regulation published in the Federal Register or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make the election.

Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections.

Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) granting relief will not prejudice the interests of the government.

Based solely on the information submitted and the representations made, we consent to X changing its classification for federal tax purposes less than 60 months after its previous classification change. As a result, X is granted an extension of time of 60 days from the date of this letter to file a Form 8832 with the appropriate service center and elect to be treated as an association taxable as a corporation effective Date

4. A copy of this letter should be attached to the Form 8832, to be filed with the
   appropriate service center within the extension period. A copy is enclosed for that purpose.

   Except as specifically set forth above, no opinion is expressed concerning the
   

   federal tax consequences of the facts described above under any other provision of the Code. This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X's authorized representative.

                                       Sincerely,
   
                                       Heather C. Maloy
                                       Associate Chief Counsel
                                       (Passthroughs and Special Industries)
   

Enclosures (2):
Copy of this letter
Copy for section 6110 purposes