Entity could elect corporate status within 60-month limit

Plain-English summary

An eligible entity had previously changed its federal classification and later became a partnership after gaining more than one owner. It wanted to elect association status taxable as a corporation before the normal 60-month waiting period expired. The entity represented that more than half of its ownership had shifted to persons who did not own interests on the filing or effective date of the prior election. The IRS consented to the new election under Treasury Regulation section 301.7701-3(c)(1)(iv). The entity had to file Form 8832 and attach the ruling letter.

Ruling snapshot

• Question: Could the entity elect corporate classification within 60 months of its prior classification election?
• Outcome: Approved because more than 50 percent of ownership had changed.
• Key authorities: Treas. Reg. §§ 301.7701-2 and 301.7701-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201906004 Third Party Communication: None
Release Date: 2/8/2019 Date of Communication: Not Applicable
Index Number: 7701.00-00
Person To Contact:
------------------------------------------ -----------------------, ID # ------------------
---------------------------- Telephone Number:
--------------------------- ----------------------
---------------------------------- Refer Reply To:
CC:PSI:B03
PLR-123858-18
Date: November 8, 2018

LEGEND

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

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

D1 = ---------------------------

D2 = ---------------------------

D3 = ----------------------------

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

    This letter responds to a letter dated July 19, 2018, 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 partnership to an association taxable as a corporation.

                                         FACTS

    According to the information submitted, X, under a prior name, was formed on D1

under the laws of State. X’s initial classification by election was an association taxable
as a corporation for federal tax purposes. Effective D2, X filed Form 8832, Entity
Classification Election, to change its classification to a disregarded entity. As of D3, X
had a change in ownership of more than fifty percent that, it represents, would satisfy
§ 301.7701-3(c)(1)(iv). As a result of having more than one member, X is currently
classified as a partnership for federal tax purposes.

PLR-123858-18 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. Elections are necessary only when an eligible entity chooses to change
its classification.

   Section 301.7701-3(c)(1)(i) provides, in part, 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, in part, 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 such 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 interests in the entity on the filing date or on the
effective date of the entity’s prior election.

                        CONCLUSION

  Based solely upon the facts submitted and the representations made, we

consent to X changing its classification by election to an association taxable as a
corporation for federal tax purposes 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.

   Except for the specific ruling above, we express or imply no opinion concerning

the federal tax consequences of the facts of this case under any other provision of the
Code. Specifically, we express or imply no opinion regarding whether the taxpayer is
otherwise eligible to make the election.

  This ruling is directed only to the taxpayer requesting it. According to

§ 6110(k)(3), this ruling may not be used or cited as precedent.

PLR-123858-18 3

   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.

    Under a power of attorney on file with this office, we are sending a copy of this

letter to X’s authorized representative.

                                   /s/
                                   Richard T. Probst
                                   Senior Technician Reviewer
                                   Office of the Associate Chief Counsel
                                   (Passthroughs & Special Industries)

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