Foreign entity may change classification within 60 months

Plain-English summary

A foreign eligible entity had elected to change from its default corporate classification to disregarded-entity status. It later experienced a greater-than-50-percent ownership change and sought consent to elect corporate classification again before the ordinary 60-month waiting period expired. Treasury Regulation section 301.7701-3 allows the IRS to permit an early change when more than half of the ownership after the new election is held by persons who owned no interest at the time of the prior election. The IRS consented to the requested change effective on the stated date. The entity still had to file Form 8832, and the ruling did not decide whether it otherwise qualified for the election.

Ruling snapshot

• Question: Could the foreign eligible entity change back to corporate classification within 60 months of its prior election after a greater-than-50-percent ownership change?
• 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: 201735012                                              Third Party Communication: None
Release Date: 9/1/2017                                         Date of Communication: Not Applicable
Index Number: 7701.00-00                                       Person To Contact:

--------------------------------------                         --------------------, ID No. ------------------
                                                               Telephone Number:
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                                                               Refer Reply To:
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------------------------                                       CC:PSI:03
                                                               PLR-137884-16

                                                               Date:
                                                               May 31, 2017




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

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

Date 2            =        -----------------

Date 3            =        ----------------------

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


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


        This letter responds to a letter dated December 5, 2016, 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 the Service’s consent to change X’s
classification from a disregarded entity to an association taxable as a corporation
effective Date 3.

                                                        FACTS

       The information submitted states that on Date 1, X was formed under laws of
Country. X’s default classification was as an association taxable as a corporation for
federal tax purposes. Effective Date 2, X, a foreign eligible entity, filed a Form 8832,
Entity Classification Election, to change its classification to a disregarded entity. As of
Date 3, X had a change in ownership of more than fifty percent that would satisfy
§ 301.7701-3(c)(1)(iv).

PLR-137884-16



                                   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 as provided in § 301.7701-3. 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)(2)(i) provides that, unless the entity elects otherwise, a
foreign eligible entity is (A) a partnership if it has two or more members and at least one
member does not have limited liability; (B) an association if all members have limited
liability; or (C) disregarded as an entity separate from its owner if it has a single owner
that does not have limited liability.

        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
service center designated on Form 8832.

        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 cannot be more than 75 days prior to the date on which the election is filed
and cannot 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 information submitted and the representations made, we
consent to X changing its classification to an association taxable as a corporation 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 and attach a
copy of this letter to the election.

PLR-137884-16



       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 regarding whether X is otherwise eligible to
make the election.

       This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the
Internal Revenue Code 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 X’s authorized representatives.

                                                 Sincerely,



                                                 Mary Beth Carchia
                                                 Senior Technician Reviewer, Branch 3
                                                 Office of Associate Chief Counsel
                                                 (Passthroughs & Special Industries)

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



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