Ownership change allowed early corporate election

Plain-English summary

A foreign eligible entity had elected partnership status and later underwent an ownership change of more than 50 percent. It sought consent to elect corporate classification before the normal 60-month limit on another classification election had expired. Treasury Regulation section 301.7701-3(c)(1)(iv) permits an early change when more than half of the ownership after the new election is held by persons who held no interest at the filing or effective date of the earlier election. The IRS consented to corporate classification from the requested date and directed the entity to file Form 8832 with a copy of the ruling.

Ruling snapshot

• Question: Could the entity change from partnership to corporate status within 60 months of its prior election?
• Outcome: Approved
• Key authorities: Treas. Reg. § 301.7701-3(c)(1)(iv)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201524014 Third Party Communication: None
Release Date: 6/12/2015 Date of Communication: Not Applicable
Index Number: 7701.00-00
Person To Contact:
--------------------------------------------- -------------------------, ID No. ------------
------------------------------------------------------------ Telephone Number:
--------------------- --------------------
---------------------------------------- Refer Reply To:
--------------------------------- CC:PSI:B01
---------------------- PLR-134411-14
Date:
February 25, 2015

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

Country = -------

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

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

This letter responds to a letter dated September 15, 2014, submitted on behalf of X by
its authorized representative, 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 a partnership to an association taxable as a corporation
effective Date 3.

Facts

X was formed on Date 1, under the laws of Country. X, an eligible entity, elected to be
treated as a partnership 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).

PLR-134411-14 2

Law and Analysis

Section 301.7701-3(a) provides, in part, 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 at least two members can elect to be classified as either an association (and
thus a corporation under § 301.7701-2(b)(2)) or a partnership, and an eligible entity with
a single owner can elect to be classified as an association or to be disregarded as an
entity separate from its owner.

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.

Conclusion

Based solely on the facts submitted and representations made, we consent to X
changing its classification to an association taxable as a corporation 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 specifically set forth above, we express or imply no opinion concerning the
federal tax consequences of any aspect of any transaction or item either discussed or
referenced in this letter. 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.

PLR-134411-14 3

We are directing the ruling only to the taxpayer who requested it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent. Pursuant to a power
of attorney on file with this office, we are sending a copy of this letter to X’s authorized
representatives.

                                   Sincerely,


                                   Joy C. Spies
                                   Joy C. Spies
                                   Senior Technician Reviewer, Branch 1
                                   Office of the Associate Chief Counsel
                                   (Passthroughs & Special Industries)

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

cc: