Dormant entity's corporate election was an initial classification

Plain-English summary

A foreign eligible entity filed Form 8832 to be classified as a corporation before it received any assets or began operations. Until its sole owner made the first capital contribution, the entity had no assets, income, deductions, liabilities, bank accounts, business activity, or board meetings. The IRS treated the corporate election as the entity's initial classification effective when it was first funded, rather than as a change from a prior classification. As a result, a later entity-classification election would not be restricted by the regulation's 60-month waiting period for repeat changes.

Ruling snapshot

• Question: Was a dormant foreign entity's corporate classification election an initial election rather than a change in classification?
• Outcome: approved, the election was an initial classification effective when the entity was first funded
• Key authorities: Treas. Reg. §§ 301.7701-2(b), 301.7701-3(a), 301.7701-3(c)(1)(iv)

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201733002                                              Third Party Communication: None
Release Date: 8/18/2017                                        Date of Communication: Not Applicable
Index Number: 7701.00-00
                                                               Person To Contact:
                                                               -----------------------, ID No. --------------
                                                               Telephone Number:
-------------------------------------------                    ----------------------
---------------------------------------------                  Refer Reply To:
------------------------------------------------------------   CC:PSI:B01
------------------                                             PLR-103038-17
---------------------------------------------                  Date:
                                                               May 08, 2017




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

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

Country = ---------------

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

Date 2           -----------------------------

Date 3           -----------------------------

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

This letter responds to a letter dated January 24, 2017, submitted on behalf of X by its
authorized representatives, requesting a ruling that X’s election to be classified as an
association taxable as a corporation was an initial classification election, and not a
change in classification, for purposes of § 301.7701-3(c)(1)(iv) of the Procedure and
Administration Regulations.

The information submitted states that X was formed under the laws of Country on Date

1. X elected to be classified as an association taxable as a corporation by filing a Form
8832, Entity Classification Election, effective Date 2. Prior to Date 3, X had no assets,
income, deductions, liabilities, bank accounts, business operations, or board meetings,
PLR-103038-17                                  2

and was dormant. On Date 3, Y, X’s sole owner, contributed the first asset and funding
to X.

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)(iv) provides that, if an eligible entity makes an election under
§ 301.7701-3(c)(1)(i) 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 of the ownership interests in the entity as of the effective date of the
subsequent election are owned by person 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 § 301.7701-3(c)(1)(iv).

Conclusion

Based solely upon the facts submitted and the representations made, we conclude that
X’s corporate classification election was an initial classification effective Date 3, and not
a change in classification, for purposes of § 301.7701-3(c)(1)(iv). As such, a
subsequent election by X to change its classification will not be subject to the sixty
months limitation set forth in § 301.7701-3(c)(1)(iv).

Except as specifically set forth above, no opinion is expressed or implied concerning the
federal tax consequences of the above described facts under any other provision of the
Code.

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.
PLR-103038-17                                3



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,


                                      David R. Haglund


                                      David R. Haglund
                                      Chief, Branch 1
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)


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



cc: