Dormant LLC's corporate election counted as its initial classification

Plain-English summary

A limited liability company was dormant after formation, with no assets, income, liabilities, or operations, until it received initial funding and began business. It filed an entity-classification election choosing corporate tax treatment, with a stated effective date before operations began, and later filed its first return as a real estate investment trust. The company asked whether the election was an initial classification rather than a change subject to the 60-month limitation on another election. The IRS ruled that the corporate election was an initial classification election effective when the company began business. The ruling did not decide whether the company otherwise qualified as a REIT.

Ruling snapshot

• Question: Was the dormant LLC's corporate election an initial classification election rather than a classification change?
• Outcome: Approved, with the initial election treated as effective when the company received funding and began operations.
• Key authorities: Treas. Reg. §§ 301.7701-2(b), 301.7701-3(a), (c)(1)

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201744002                                              Third Party Communication: None
Release Date: 11/3/2017                                        Date of Communication: Not Applicable
Index Number: 7701.00-00
                                                               Person To Contact:
------------------------------------------------------         -----------------------, ID No. -------------------
------------------------------------------------------------   ---------------------------------------------------
------                                                         Telephone Number:
------------------------                                       --------------------
---------------------------------                              Refer Reply To:
                                                               CC:PSI:1
                                                               PLR-103035-17
                                                               Date:
                                                               July 20, 2017




Legend

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

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

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

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

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

Date4 =           ---------------------------

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

This responds to the letter dated January 24, 2017, and subsequent correspondence,
submitted on behalf of X, 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.

                                                     FACTS

The information submitted states that X was formed as a limited liability company under
the laws of State on Date1. Prior to Date3, X had no assets, income, deductions,
liabilities, business operations, and was dormant. On Date3, X received its initial funding
and began its business operations. X elected to be classified as an association taxable
as a corporation, by filing a Form 8832, Entity Classification Election, effective Date2, a
PLR-103035-17                                  2

date between Date1 and Date3. X filed its initial Form 1120-REIT, U.S. Income Tax
Return for Real Estate Investment Trusts, for the tax year that began Date3 and ended
Date4.

                                   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. 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(c)(1)(i) provides that, subject to the limitation of § 301.7701-
3(c)(1)(iv), an eligible entity may elect to be classified other than its default
classification, 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
§ 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 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 § 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 election effective Date3
for purposes of § 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. No opinion is expressed or implied with regard to whether X otherwise qualifies
as a REIT under subchapter M, part II of Chapter 1 of the Code. Furthermore, this letter
does not provide any rulings under §§ 856 or 857.

This ruling is directed 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.
PLR-103035-17                                 3


In accordance with the Power of Attorney on file with this office, a copy of this letter
ruling will be sent to X's authorized representatives.

                                       Sincerely,

                                       Laura C. Fields

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

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