PLR 201147004: IRS grants extra time for a partnership classification election

Plain-English summary

An LLC asked the IRS for more time to file Form 8832 and elect partnership classification for federal tax purposes. The LLC had changed ownership and was eligible to make the election, but no election was filed when the ownership change occurred. The IRS concluded that the LLC met the requirements for relief under Treas. Reg. §§ 301.9100-1 and 301.9100-3. It granted 120 days to file the form and make the election effective as of the requested date.

Ruling snapshot

• Question: May the LLC file Form 8832 late and elect partnership classification effective on the requested date?
• Outcome: Approved, with 120 days to file the form.
• Key authorities: IRC § 6110; Treas. Reg. §§ 301.7701-3, 301.9100-1, and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201147004
Third Party Communication: None
Release Date: 11/25/2011
Date of Communication: Not Applicable
Index Number: 9100.31-00
Person To Contact:
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Refer Reply To:
CC:PSI:B03
PLR-104728-11
Date:
August 02, 2011

Legend

X = -----------------------------------------------------------------------------------------------------
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Y = -----------------------------------------------------------------------------------------------------
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Z = -----------------------------------------------------------------------------------------------------
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State = -------------

Date = -------------------------
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Date = ----------------------
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Date = ---------------------
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Dear ---------------:

This letter responds to a letter dated January 6, 2011, submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election under § 301.7701-3(c)(1)(iv) to be treated as a partnership for federal tax purposes.

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Facts

The information submitted states that X was formed on Date 1 as a State limited liability company. X filed an entity classification election to be treated as an association taxable as a corporation for federal tax purposes effective Date 2. Until Date 3, X was owned entirely by Y. During that time, Y was owned by two partners: Z and an unrelated partner. On Date 3, Y distributed its entire interest in X to Z which then distributed the entire interests in X to some of its partners. Of the partners receiving Y’s interest in X, five (the “Investors”) received more than 70% of the ownership of X. Prior to Date 3, the Investors owned less than 4% of the ownership of X indirectly. As a result of these transactions, more than 50% of the ownership of X changed. X represents that it is a domestic entity that was eligible to elect to be treated as a partnership for federal tax purposes, effective on Date 3. However, no entity classification election was filed for X at that time. X represents that it has been consistently treated as a partnership for federal tax purposes since Date 3.

Law and Analysis

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. An eligible entity with a single owner can elect to be classified as an association (and thus a corporation under § 301.7701-2(b)(2)) or to be disregarded as an entity separate from its owner.
Section 301.7701-3(b)(1) provides that except as provided in § 301.7701-3(b)(3), unless the entity elects otherwise, a domestic eligible entity is (i) a partnership if it has two or more members; or (ii) disregarded as an entity separate from its owner if it has a single owner.

Section 301.7701-3(c)(1)(i) provides, in part, 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 with the service center designated on Form 8832.

Section 301.7701-3(c)(1)(iv) provides that if an eligible entity makes an election under paragraph (c)(1)(i) of this section to change its classification (other than an election made by an existing entity to change its classification as of the effective date of this section), 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. An election by a

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newly formed eligible entity that is effective on the date of formation is not considered a change for purposes of this paragraph (c)(1)(iv).

Section 301.9100-1(c) provides that the Commissioner 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 not 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.

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

Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of § 301.9100-2.

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 solely on the facts submitted and representations made, we conclude that X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Accordingly, X is granted an extension of time of 120 days from the date of this letter to file a Form 8832 with the appropriate service center and elect to be treated as a partnership for federal tax purposes effective Date 3. A copy of this letter should be attached to the Form 8832. A copy is enclosed for that purpose.

Except as expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the ruling requests, it is subject to verification on examination.

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

Sincerely,

Associate Chief Counsel
(Passthroughs and Special Industries)

By:
Richard T. Probst
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures
A copy of this letter
A copy for § 6110 purposes