Ownership change permits early entity-classification election

Plain-English summary

A foreign eligible entity had elected to be treated as a disregarded entity and later wanted to become an association taxable as a corporation. Ordinarily, an entity cannot make another classification election during the 60 months after a prior election. The entity represented that more than 50 percent of its ownership had changed to persons who held no interest on the filing or effective date of the earlier election. The IRS consented to the new classification election under the ownership-change exception. The entity was directed to file Form 8832 with a copy of the ruling attached.

Ruling snapshot

• Question: Could the entity change from disregarded status to corporate classification within 60 months of its prior election?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 301.7701-2 and 301.7701-3(c)(1)(iv)

Full text (IRS public release)

Internal Revenue Service                                  Department of the Treasury
                                                          Washington, DC 20224

Number: 201749001                                         Third Party Communication: None
Release Date: 12/8/2017                                   Date of Communication: Not Applicable
Index Number: 7701.00-00
                                                          Person To Contact:
------------------                                        ------------------------------,
-----------------------------------                       ID No. ----------------
-------------------------                                 Telephone Number:
--------------------------------------------              ----------------------
                                                          Refer Reply To:
                                                          CC:PSI:B01
                                                          PLR-108128-17
                                                          Date:
                                                          September 07, 2017


LEGEND

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

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

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

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

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


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

        This letter responds to a letter dated March 7, 2017, submitted on behalf of X by
its authorized representative, requesting a ruling under § 301.7701-3(c)(1)(iv) of the
Procedure and Administration Regulations. Specifically, your letter requests consent to
change X’s classification from a disregarded entity to an association taxable as a
corporation effective Date 3.

Facts

        X was formed on Date 1, under the laws of Country. X, an eligible entity, elected
to be treated as a disregarded entity for federal tax purposes effective Date 2. X
represents that as of Date 3, X had a change of ownership of more than fifty percent
that would satisfy § 301.7701-3(c)(1)(iv).
PLR-108128-17                                 2


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)(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 can not be more than 75 days prior to the date on which the election is filed
and can not 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 facts submitted and representations made, we consent to X
changing its classification to an association taxable as a corporation effective Date 3
under § 301.7701-3(c)(1)(iv). X should file a form 8832, Entity Classification Election,
with the appropriate service center with a copy of this letter attached.

       Except as specifically set forth above, we express or imply no opinion concerning
the federal tax consequences of any aspect of any transaction or item either discussed
or referenced in this letter. 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.
PLR-108128-17                                 3


       We are directing the ruling 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. 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,

                                          Joy C. Spies

                                          Joy C. Spies
                                          Senior Technician Reviewer, Branch 1
                                          Office of Associate Chief Counsel
                                          (Passthroughs & Special Industries)




Enclosures (2)

       Copy of this letter
       Copy of this letter for section 6110 purposes



cc: