Entity may elect corporate status within 60-month limit

Plain-English summary

An eligible entity had elected to be treated as a disregarded entity and later experienced a change in ownership of more than 50 percent. It wanted to elect association status taxable as a corporation before the usual 60-month waiting period expired. The regulations allow the IRS to consent to an earlier change when more than half of the ownership at the new election date is held by persons who did not own interests on the filing or effective date of the prior election. Based on the entity's representations, the IRS consented. It gave the entity 120 days to file Form 8832 under Revenue Procedure 2009-41 for the requested effective date.

Ruling snapshot

• Question: Could an eligible entity change from disregarded status to corporate status less than 60 months after its prior classification election following a greater-than-50-percent ownership change?
• Outcome: Approved; the entity received 120 days to file Form 8832 for the requested effective date.
• Key authorities: Treas. Reg. §§ 301.7701-2 and 301.7701-3(c)(1); Rev. Proc. 2009-41

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201927011                                              Third Party Communication: None
Release Date: 7/5/2019                                         Date of Communication: Not Applicable
Index Numbers: 7701.00-00
                                                               Person To Contact:
------------------------------                                 ----------------------, ID No. ------------------
------------------------------------------------------------   Telephone Number:
----------------------------------------------------------     ----------------------
-------------------------------------                          Refer Reply To:
----------------------------------                             CC:PSI:B03
                                                               PLR-130349-18
                                                               Date:
                                                               April 08, 2019




LEGEND

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

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

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

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

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


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

This letter responds to a letter dated October 9, 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 disregarded entity (DE) to an association taxable as a corporation.

                                                     FACTS

According to the information submitted, X, was formed on D1 under the laws of State. X
elected to be treated as a DE for federal tax purposes effective D2. 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 one member, X is currently classified as a
DE for federal tax purposes.

PLR-130349-18                                  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 on the facts submitted and representations made, we consent to X
changing its classification less than 60 months after its previous classification change
under § 301.7701-3(c)(1)(iv). X is granted an extension of time of 120 days from the
date of this letter to file a Form 8832, filed pursuant Rev. Proc. 2009-41, with the
appropriate service center to elect to be treated as a corporation effective Date3. X
must submit that Form 8832 with a copy of this letter attached.

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-130349-18                                 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.


                                              Sincerely,

                                              Associate Chief Counsel
                                              (Passthroughs & Special Industries)



                                          By:_____________________________
                                             Richard T. Probst
                                             Senior Technician Reviewer, Branch 3
                                             Office of the Associate Chief Counsel
                                             (Passthroughs & Special Industries)



Enclosures: Copy of this letter
            Copy of this letter for § 6110 purposes


cc: