PLR 200836004: Foreign entity could change classification within 60 months

Plain-English summary

A foreign eligible entity had elected partnership treatment and later experienced a change of more than 50 percent of its ownership. It wanted to elect association status taxable as a corporation before the usual 60-month waiting period expired. The IRS consented to the early classification change based on the submitted facts and representations. It granted the entity 60 days from the ruling date to file Form 8832 for the requested effective date and attach a copy of the ruling.

Ruling snapshot

• Question: Could the foreign entity change from partnership to corporate classification less than 60 months after its prior election?
• Outcome: Approved, with 60 days to file Form 8832
• 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: 200836004
Third Party Communication: None
Release Date: 9/5/2008
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
9100.31-00
Person To Contact:
----------------------, ID No. ------------- ------------------------------------------------------------ Telephone Number:
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Refer Reply To:
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CC:PSI:03
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Date: May 27, 2008

LEGEND

X = -------------------------------------------------------------------------
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Country = ----------------------

d1 = -----------------

d2 = -------------------

d3 = ----------------------

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

We received a letter dated December 29, 2007 submitted on behalf of X, by its authorized representative, requesting a ruling 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 partnership to an association taxable as a corporation, effective d3. This letter responds to that request.

FACTS

X was formed as a limited corporation on d1, under the laws of Country. X, an eligible entity, elected to be a partnership for federal income tax purposes effective d2. X represents that as of d3 X had a change of ownership of more than fifty percent that would satisfy § 301.7701-3(c)(1)(iv).
PLR-101215-08
2

LAW

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 as provided in § 301.7701-3.

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; (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, except as provided in § 301.7701- 3(c)(1)(iv) and (v), an eligible entity may elect to be classified other than as provided in § 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 can not be more than 75 days prior to the date on which the election is filed and can not be more than 12 months after the date on which the election 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 sixty months if more than fifty percent of the ownership interest 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 in exercising the Commissioner's discretion may grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3, 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 Code except subtitles E, G, H, and I.

Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections. Section 301.9100-3 sets forth 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.
PLR-101215-08
3

Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3 will be granted when the taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.

CONCLUSION

Based on the facts 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 Form 8832 with the appropriate service center and to elect to be classified as an association taxable as a corporation for federal tax purposes effective d3. A copy of this letter should be attached to the Form 8832. A copy is enclosed for that purpose.

Except as expressly set forth above, we express or imply no opinion concerning the federal tax consequences of the facts discussed 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.

In accordance with a power of attorney on file with this office, we are sending a copy of this letter to X's authorized representatives.

Sincerely,

/s/

William P. O'Shea
Associate Chief Counsel
(Passthroughs & Special Industries)

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