PLR 1336001: IRS consents to a change from corporation to partnership classification

Plain-English summary

The taxpayer was a limited liability company that had elected S corporation status. A foreign entity later acquired an ownership interest, terminating the S corporation election, and new owners acquired more than half of the ownership interests. The taxpayer asked to change its federal tax classification from an association taxable as a corporation to a partnership. The IRS consented to the change under Treas. Reg. § 301.7701-3(c)(1)(iv), effective on the requested date, and instructed the taxpayer to file Form 8832 with a copy of the ruling.

Ruling snapshot

• Question: May the LLC change its federal tax classification from an association taxable as a corporation to a partnership within the 60-month period?
• Outcome: Approved, effective on the requested date.
• Key authorities: Treas. Reg. §§ 301.7701-2 and 301.7701-3; IRC §§ 1361, 1362, and 6110.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201336001 Third Party Communication: None
Release Date: 9/6/2013 Date of Communication: Not Applicable
Index Number: 7701.00-00 Person To Contact:
-----------------------, ID No. ------------------
------------------------ Telephone Number:
-------------------------- ----------------------
-------------------------------- Refer Reply To:
-------------------------------- CC:PSI:B03
---------------------------- PLR-103651-13
Date:
May 07, 2013

                                               LEGEND

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

State = --------------

Date = -----------------------
1
Date = ----------------------
2
Date = ----------------------
3

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

    This responds to a letter dated December 11, 2012, and subsequent

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

                                                 FACTS

      The information submitted states that on Date 1, X was formed as a limited

liability company under the laws of State. At the time of formation, X had a single owner
and was treated as a disregarded entity for federal tax purposes. Effective Date 2, X
elected to be an S corporation. On Date 3, a foreign entity acquired an ownership
interest in X thereby terminating X’s S corporation election. In addition, effective Date 3,
new owners, including the foreign entity, acquired more than fifty percent of the
ownership interests in X.
PLR-103651-13 2

                               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. 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)(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 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
under § 301.7701-(3)(b), or to change its classification, by filing Form 8832 with the
appropriate service center. Under § 301.7701-3(c)(1)(iii), this election will be effective
on the date specified by the entity on Form 8832 or on the date filed if no such date is
specified. The date specified on Form 8832 cannot be more than 75 days prior to 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 301.7701-3(c)(1)(v)(C) provides that an eligible entity that timely elects to
be an S corporation under section 1362(a)(1) is treated as having made an election
under § 301.7701-3 to be classified as an association, provided that (as of the effective
date of the election under section 1362(a)(1) the entity meets all other requirements to
qualify as a small business corporation under section 1361(b). Subject to § 301.7701-
3(c)(1)(iv), the deemed election to be classified as an association will apply as of the
effective date of the S corporation election and will remain in effect until the entity
makes a valid election, under § 301.7701-3(c)(1)(i), to be classified as other than an
association.
PLR-103651-13 3

                                  CONCLUSION

    Based solely on the information submitted and the representations made, we

consent to X changing its classification to a partnership for federal tax purposes
effective Date 3 under § 301.7701-3(c)(1)(iv). X should file a Form 8832, Entity
Classification Election, with the appropriate service center with a copy of this letter
attached.

   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)

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.

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to your authorized representative.

                                      Sincerely,




                                      James A. Quinn
                                      Senior Counsel, Branch 3
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)

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

cc: