Six investment-fund series received late corporate classification relief

Plain-English summary

Six series of business trusts intended from formation to be treated as corporations and regulated investment companies. Each had filed Form 1120-RIC and operated consistently with that intended status, but none timely filed Form 8832 to elect corporate classification. The IRS found that the requirements for discretionary late-election relief were satisfied. It granted each series 120 days to file Form 8832 effective from its respective formation date. The IRS did not rule on whether any series qualified as a regulated investment company or whether its RIC election was valid.

Ruling snapshot

• Question: May six business-trust series make late entity-classification elections to be taxed as corporations from their formation dates?
• Outcome: approved, with 120 days for each series to file Form 8832
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                Washington, DC 20224

Number: 201934003                                               Third Party Communication: None
Release Date: 8/23/2019                                         Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
                                                                Person To Contact:
------------------------------------------------------------    ------------------------, ID No. ------------------
-----                                                           ---------------------------------------------------
-------------------------                                       Telephone Number:
------------------------                                        --------------------
------------------------------------------------------------    Refer Reply To:
--------------------------                                      CC:PSI:B03
                                                                PLR-132385-18
                                                                PLR-132386-18
                                                                PLR-132387-18
                                                                PLR-132388-18
                                                                PLR-132389-18
                                                                PLR-132390-18
                                                                Date:
                                                                May 16, 2019


Legend

X1                =         -----------------------------------------------------------------------------------
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X2                =         -----------------------------------------------------------------------------------------
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X3                =         -----------------------------------------------------------------------------------------
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--
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X4                =         -------------------------------------------------------------------------
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X5                =         --------------------------------------------------------------------------
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X6                =         -----------------------
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Y                 =        ------------------------------------------------------------------

Z                 =        ----------------------------------

Trust1          =     -----------------------------------------------------

Trust2          =     -------------------------------------------------------

Trust3          =     -------------------------------

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

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

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

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

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

Date5           =     ------------------

Date6           =     ---------------------------

N1              =     --


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

        This responds to a letter dated October 19, 2018, and subsequent
correspondence submitted on behalf of Y and X1, X2, X3, X4, X5, and X6, requesting
that the Service grant X1, X2, X3, X4, X5, and X6 an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to each file an entity
classification election to be treated as an association taxable as a corporation for
Federal tax purposes.

       The information submitted states that X1, X2, X3, X4, X5, and X6 were each
formed under the laws of State on Date1, Date2, Date3, Date4, Date5 and Date6,
respectively. X1 and X2 are each a series of Trust1; X3, X4, and X5 are each a series
of Trust2; and X6 is a series of Trust3. Trust1, Trust2, and Trust3 are business trusts
formed under the laws of State and issue transferable units of beneficial interest in
different series of portfolio. Y is an asset management company which serves as the
investment advisor, investment manager, and fund administrator for X1, X2, X3, X4, X5,
and X6. Y is a wholly-owned subsidiary of Z. According to the submission, each of X1,
X2, X3, X4, X5, and X6 has issued transferable units of beneficial interest to at least N1
owners.

         The information submitted further states that X1, X2, X3, X4, X5, and X6 each
filed an election to be treated as a Regulated Investment Company (“RIC”) in
accordance with § 1.851-2(a), by computing taxable income as a RIC in its return for the
first taxable year for which the election is applicable, and in all subsequent years. X1,
X2, X3, X4, X5, and X6 have filed all tax returns for each tax year since their respective
dates of formation on Form 1120-RIC, U.S. Income Tax Return for Regulated
Investment Companies. X1, X2, X3, X4, X5, and X6 always intended to be treated as
corporations for Federal tax purposes, and have always operated as if they were
corporations and, more specifically, as RICs. However, X1, X2, X3, X4, X5, and X6
each failed to timely file an entity classification election to be treated as an association
taxable as a corporation for Federal tax purposes.

      Section 301.7701-2(a) generally provides that a business entity is any entity
recognized for federal tax purposes that is not properly classified as a trust under
§ 301.7701-4 or otherwise subject to special treatment under the Internal Revenue
Code.

        Section 301.7701-3(a) provides that an eligible entity with at least two members
may elect to be classified as either an association (and thus a corporation under
§ 301.7701-2(b)(2)) or as 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(a) further provides that so long as a business entity is not
classified as a corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an
eligible entity), it may elect its classification for federal tax purposes.

       Section 301.7701-3(c) provides that an entity classification election must be filed
on Form 8832 and can be effective up to seventy-five (75) days prior to the date the
form is filed or up to twelve (12) months after the date on which the form is filed.

       Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time to make a regulatory election, or a statutory election (but no more than
6 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 an election whose due date is prescribed by a
regulation published in the Federal Register or a revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin.

       Sections 301.9100-1 through 301.9100-3 provide the standards the
Commissioner will use to determine whether to grant an extension of time to make the
election. Section 301.9100-2 provides the rules governing automatic extensions of time
for making certain elections. Section 301.9100-3 provides the standards the
Commissioner will use to determine whether to grant an extension of time for regulatory
elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a
request for relief will be granted when the taxpayer provides evidence to establish to the
satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good
faith, and (2) granting relief will not prejudice the interests of the government.

        Based solely on the information submitted and the representations made, we
conclude that the requirements of § 301.9100-3 have been satisfied. As a result, X1,
X2, X3, X4, X5, and X6 are each granted an extension of time of 120 days from the date
of this letter to file a Form 8832 with the appropriate service center to elect to be treated
as an association taxable as a corporation effective on Date1, Date2, Date3, Date4,
Date5 and Date6, respectively. A copy of this letter should be attached to each Form
8832.

         Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, no opinion is expressed or implied regarding the
eligibility of X1, X2, X3, X4, X5, and X6 to be a RIC or the validity of their RIC elections.

      The rulings contained in this letter are based upon information and
representations submitted by the taxpayers 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 request for a ruling, it is subject to verification on
examination.

      This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

        Pursuant to powers of attorney on file with this office, we are sending copies of
this letter to the authorized representatives of X1, X2, X3, X4, X5, X6 and Y.

                                                  Sincerely,

                                                  Associate Chief Counsel
                                                  (Passthroughs & Special Industries)

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

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