LLC may change classification and file a late election

Plain-English summary

A domestic limited liability company had elected corporate tax treatment and was later acquired entirely by an unrelated corporate owner. The acquisition changed more than 50 percent of the LLC's ownership, and the LLC wanted to become disregarded for federal tax purposes less than 60 months after its earlier classification election. It also failed to timely file Form 8832 for the desired effective date. The IRS consented to the early classification change and found that the standards for late-election relief were met. It granted 120 days to file Form 8832 and any required consistent returns, including amended returns.

Ruling snapshot

• Question: Could the LLC change classification within 60 months of its prior election and make the disregarded-entity election late?
• Outcome: Approved, conditioned on filing Form 8832 and consistent returns within 120 days.
• Key authorities: Treas. Reg. §§ 301.7701-3(c)(1)(iv) and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                Washington, DC 20224

Number: 201636012                                               Third Party Communication: None
Release Date: 9/2/2016                                          Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00
                                                                Person To Contact:
------------------------------------------------                ---------------------, ID No. ----------------
-----------------------------------------                       Telephone Number:
---------------------------------------                         --------------------
-------------                                                   Refer Reply To:
-------------------------------                                 CC:PSI:1
                                                                PLR-105691-16
                                                                Date:
                                                                June 01, 2016




Legend

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

Y=                 ---------------
-----------------------------------------

Z=                --------------------

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

Date1 =           ---------------------------

Date2 =           --------------------------

Date3 =           --------------------------

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

This letter responds to a letter dated February 19, 2016, submitted on behalf of X by X’s
authorized representatives, requesting rulings under §§ 301.7701-3(c)(1)(iv) and
301.9100-3 of the Procedure and Administration Regulations.

                                                     FACTS

The information submitted states that X was formed as a limited liability company in
State. Y is a State corporation. X filed an entity classification election to be treated as
an association taxable as a corporation for federal tax purposes effective Date1. Until
Date2, X was owned entirely by Z. X represents that Z has at all times been unrelated
PLR-105691-16                                  2

to Y. On Date2, Y purchased all of X’s membership units from Z for cash consideration.
Since Date2, Y has been the sole owner of X.

As a result of the sale, more than 50% of the ownership of X changed. X represents
that it is a domestic entity eligible to elect to be treated as an entity disregarded as
separate from its owner for federal tax purposes, effective Date3. Date3 is within sixty
months of LLC’s previous entity classification election effective Date2. X requests the
Service’s consent under § 301.7701-3(c)(1)(iv) to change its entity classification.

Further, X failed to timely file a valid Form 8832, Entity Classification Election, effective
Date3. X represents that granting relief to allow it to file a late election to be treated as
a disregarded entity will not prejudice the interest of the government. In addition, X
represents that it acted reasonably and in good faith, and that no hindsight is involved.

                                   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. 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(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, in part, that 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 service center designated on Form 8832.

Section 301.7701-3(c)(1)(iv) provides that if an eligible entity makes an election under
paragraph (c)(1)(i) of this section to change its classification (other than an election
made by an existing entity to change its classification as of the effective date of this
section), 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. An election by a
newly formed eligible entity that is effective on the date of formation is not considered a
change for purposes of this paragraph (c)(1)(iv).
PLR-105691-16                                3

Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of time 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 including an election whose due date is prescribed by a
regulation published in the Federal Register, or the revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin.

Sections 301.9100-1 through 301.9100-3 provide the standards that the Commissioner
will use to determine whether to grant an extension of time to make an election. Section
301.9100-1(a).

Section 301.9100-2 provides automatic extensions of time for making certain elections.
Section 301.9100-3 provides rules for requesting extensions of time for regulatory
elections that do not meet the requirements of § 301.9100-2.

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides
evidence to establish that the taxpayer acted reasonably and in good faith, and that
granting relief will not prejudice the interests of the government.

                                     CONCLUSION

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 entity
classification election. We further conclude that the requirements of §§ 301.9100-1 and
301.9100-3 have been satisfied. As a result, X is granted an extension of time of 120
days from the date of this letter to make an election to be treated as a disregarded entity
for federal tax purposes effective Date3. X must make the election by filing a properly
executed Form 8832, Entity Classification Election, with the appropriate service center.
A copy of this letter should be attached to the form.

This ruling is contingent on X and Y filing within 120 days of this letter any required
federal income tax and information returns (including amended returns) consistent with
the requested relief. A copy of this letter should be attached to any such forms.

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 rulings contained in this letter are 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 requests, it is subject to verification on examination.
PLR-105691-16                                  4

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representatives.

                                       Sincerely,


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

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



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