PLR 1208009: IRS approves a late change to entity classification

Plain-English summary

The IRS consented to a foreign eligible entity changing its federal tax classification from a disregarded entity to an association taxable as a corporation. The entity represented that a change in ownership of more than 50 percent allowed it to change its classification before the usual 60-month waiting period ended. The IRS granted 120 days to file Form 8832 with the appropriate service center, effective on the requested date. The ruling did not address whether the entity was otherwise eligible to make the election.

Ruling snapshot

• Question: Can the entity make a late election to change its classification to an association taxable as a corporation?
• Outcome: Approved, subject to filing Form 8832 within 120 days
• Key authorities: Treas. Reg. §§ 301.7701-3(c)(1)(iv), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201208009 Third Party Communication: None
Release Date: 2/24/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.31-00, 7701.00-00 ----------------------, ID No. -------------
Telephone Number:
---------------------
----------------------------- Refer Reply To:
-------------------------------- CC:PSI:B02
---------------------------------- PLR-123845-11
------------------------ Date:
-------------------------------- November 09, 2011

X = ---------------------------------------------------------------------------------------------------
------------------------

Country = ----------------------

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

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

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

Dear ----------------

    This letter responds to your letter dated June 3, 2011, and additional

correspondence, requesting a ruling under § 301.7701-3(c)(1)(iv) and § 301.9100-3 of
the Procedure and Administration Regulations. Specifically, your letter requests the
Service’s consent to change X’s classification from a disregarded entity to an
association taxable as a corporation, effective Date 3.

     X was formed on Date 1, under the laws of Country. X, an eligible entity, elected

to be treated as a disregarded entity for federal tax purposes effective Date 2. X
represents that as of Date 3, X had a change of ownership of more than fifty percent
that would satisfy § 301. 7701-3(c)(1)(iv).

     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. Elections
are necessary only when an eligible entity does not want to be classified under the
default classification or when an eligible entity chooses to change its classification.
PLR-123845-11 2

    Section 301.7701-3(b)(2)(i) provides that, except for certain existing entities

described in § 301.7701-3(b)(3), unless a foreign eligible entity elects otherwise, the
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 member 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 as 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 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 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 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 six 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 regulation published in the
Federal Register, or a revenue ruling, revenue procedure, notice, or announcement
published in the Internal Revenue Bulletin.

   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.

    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
PLR-123845-11 3

taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the
interests of the Government.

    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 120 days from
the date of this letter to file Form 8832 with the appropriate service center to elect to be
classified as an association taxable as a corporation for federal tax purposes effective
Date 3. A copy of this letter should be attached to the Form 8832.

    Except as expressly provided herein, we express or imply no opinion concerning

the tax consequences of any aspect of any transaction or item discussed or referenced
in this letter. Specifically, we express or imply no opinion regarding whether X is
otherwise eligible to make the election.

   This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the

Internal Revenue Code provides that it may not be used or cited as precedent.

   The ruling contained in this letter is 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 request, it is subject to verification on examination.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)



                             By: ____________________________
                                 Bradford R. Poston
                                 Senior Counsel, Branch 2
                                 (Passthroughs & Special Industries)

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

cc: