Corporation sole counts as a C corporation for TEFRA small-partnership exception

Plain-English summary

Chief Counsel considered whether a state-law corporation sole affected a partnership's eligibility for the TEFRA small-partnership exception. The advice explains that any corporation other than an S corporation is treated as a C corporation solely for applying that exception. Because the corporation sole was incorporated under state law, it would count as a C corporation for this purpose. A partnership with ten or fewer partners, all individuals other than nonresident aliens or C corporations, therefore qualifies for the exception unless it affirmatively elects into TEFRA. The memorandum doubted that the entity could change its classification under the check-the-box regulations and asked counsel to check back if it attempted such an election.

Ruling snapshot

• Question: Does a state-law corporation sole count as a C corporation when applying the TEFRA small-partnership exception?
• Outcome: Advice given: yes, it is treated as a C corporation for that limited purpose
• Key authorities: Treas. Reg. §§ 301.6231(a)(1)-1(a)(1) and 301.7701-2(b)

Full text (IRS public release)

ID: CCA_2015061715013601 [Third Party Communication:

UILC: 6231.01-01 Date of Communication: Month DD, YYYY]

Number: 201530019
Release Date: 7/24/2015
From:
Sent: Wednesday, June 17, 2015 3:01:36 PM
To:
Cc:
Bcc:
Subject: RE: question

Under Treas. Reg. 301.6231(a)(1)-1(a)(1)(last sentence) any corporation that is not an
S corporation is deemed to be a C corporation solely for the purpose of applying the
small partnership exception to TEFRA. So your state law “Corporation sole”, as an
incorporated entity under state law, would be deemed to be a C corporation. Cf. Treas.
Reg. 1.7701-2(b). So if your partnership has 10 or fewer partners, all of whom are
individuals (other than non-resident aliens) or C corporations, the small partnership
exception to TEFRA applies absent an affirmative election to be governed by the
TEFRA provisions. I don’t think that the check-the-box regulations allow it to change its
classification, but if it purports to make such an election check back.