PLR 201331001: IRS grants relief for a foreign entity classification election

Plain-English summary

The IRS consented to a foreign entity changing its federal tax classification from a disregarded entity to an association taxable as a corporation. The entity had previously changed its classification and therefore sought permission to make another change before the normal 60-month waiting period ended. Based on the submitted information and representations, the IRS granted a 120-day extension to file Form 8832 and elect corporate classification, effective on the redacted date. The ruling did not express an opinion on whether the entity was otherwise eligible to make the election.

Ruling snapshot

• Question: May the entity change its classification again within 60 months and receive extra time to file Form 8832?
• Outcome: Approved, with a 120-day extension to file Form 8832.
• Key authorities: Treas. Reg. §§ 301.7701-3(c)(1)(iv) and 301.9100-3; IRC § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201331001
Release Date: 8/2/2013

Third Party Communication: None
Index Number: 7701.00-00
Date of Communication: Not Applicable

-------------------------------------------------- Person To Contact:
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CC:PSI:B03
PLR-104814-13
Date:
April 03, 2013

Legend

X = ----------------------------------------------------------------------
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Prior Owner = --------------------------------

Current Owner = -----------------------------
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Country = -------

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

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

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

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

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

This responds to a letter dated January 30, 2013, 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 foreign entity to that of a corporation, effective Date 4.

The information submitted states that X was formed on Date 1 under the laws of Country and defaulted to an association taxable as a corporation pursuant to

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§ 301.7701-3(b)(2). Upon formation, X was wholly owned through a series of disregarded entities, with Prior Owner being the ultimate parent. On Date 2, Prior Owner caused X to file a Form 8832, Entity Classification Election, making a change in X’s classification to that of a disregarded entity, effective Date 2. On Date 3, Prior Owner sold the group of disregarded entities, which owned X, to Current Owner. X represents that as of Date 3, X, through the sale of the disregarded entities that owned 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.

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 taxpayer acted reasonably and in good faith, and the grant of 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 120 days from the date of this letter to file a Form 8832 with the appropriate service center and elect to be classified as an association taxable as a corporation for federal tax purposes, effective Date 4. 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 transaction or item discussed or referenced in this letter. Specifically, we express or imply no opinion 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 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.

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In accordance with the Power of Attorney on file with this office, copies of this letter ruling will be sent to your authorized representatives.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: ______
Richard T. Probst
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures (2):
Copy of this letter
Copy for § 6110 purposes