Entity received 120 days for a late partnership classification election

Plain-English summary

An eligible entity had elected to be taxed as a corporation and later experienced a change of more than 50 percent in its ownership. It wanted to change to partnership classification within the usual 60-month restriction period but failed to file Form 8832 on time. The entity represented that it acted reasonably and in good faith, that no hindsight was involved, and that relief would not prejudice the government. The IRS consented to the classification change because the ownership-change exception applied. It also granted 120 days to file Form 8832 for retroactive partnership treatment and to file any required original or amended returns consistently with the relief.

Ruling snapshot

• Question: Could the entity change classification within 60 months of its prior election and file a late Form 8832 for partnership status?
• Outcome: Approved, with a 120-day filing period and consistent-return conditions.
• Key authorities: Treas. Reg. §§ 301.7701-3(c)(1)(iv), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                  Washington, DC 20224

Number: 201825022                                                 Third Party Communication: None
Release Date: 6/22/2018                                           Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
              9100.31-00                                          Person To Contact:
                                                                  ------------------------------,
-------------------------                                         ID No. ----------------
------------------------------------------                        Telephone Number:
------------------------------                                    ----------------------
-------------------------------                                   Refer Reply To:
                                                                  CC:PSI:B01
                                                                  PLR-132154-17
                                                                  Date:
                                                                  March 05, 2018


LEGEND

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

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

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

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

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


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

       This responds to a letter dated September 11, 2017, and subsequent
correspondence, requesting a ruling under § 301.7701-3(c)(1)(iv) and § 301.9100-3 of
the Procedure and Administration Regulations. Specifically, your letter requests the
Service’s consent to change X’s classification from an association taxable as a
corporation to a partnership, effective Date 3.

Facts

       X was formed on Date 1, under the laws of State. X, an eligible entity, elected to
be treated as an association taxable as a corporation 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-132154-17                                  2

        Further, X failed to timely file a valid Form 8832, Entity Classification Election,
effective Date 3. X represents that granting relief to allow it to file a late election to be
treated as a partnership 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).

       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.
PLR-132154-17                                 3

       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 file Form 8832 with the appropriate service
center to elect to be classified as a partnership for federal tax purposes effective Date 3.
A copy of this letter should be attached to the Form 8832.

       This ruling is contingent on X 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-132154-17                                  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,

                                           Associate Chief Counsel
                                           (Passthroughs & Special Industries)


                                            Wendy L. Kribell
                                    By:    ________________________________
                                           Wendy L. Kribell
                                           Assistant to the Branch Chief, Branch 1
                                           Office of the Associate Chief Counsel
                                           (Passthroughs and Special Industries)


Enclosures (2)

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


cc: