Foreign entity may change classification within the 60-month limit

Plain-English summary

A foreign eligible entity had changed from its default corporate classification to disregarded-entity status. It later underwent a change in ownership of more than 50 percent and wanted to elect corporate classification again before the normal 60-month waiting period expired. Treasury Regulations section 301.7701-3(c)(1)(iv) allows the IRS to consent to an earlier change when the required ownership turnover occurs. Based on the submitted facts and representations, the IRS consented to the requested corporate classification effective date. It also granted 120 days from the ruling date to file Form 8832 under the late-election procedure.

Ruling snapshot

• Question: Could the foreign entity elect corporate classification again within 60 months after its prior classification change?
• Outcome: Approved, with 120 days to file Form 8832.
• Key authorities: Treas. Reg. § 301.7701-3(c)(1)(iv); Rev. Proc. 2009-41.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201952002 Third Party Communication: None
Release Date: 12/27/2019 Date of Communication: Not Applicable
Index Number: 7701.00-00 Person To Contact:

------------------------------ --------------------, ID No. ------------------
Telephone Number:

-------------------------- -------- --------------
Refer Reply To:

----------------- CC:PSI:03
PLR-107319-19

                                                           Date:
                                                           September 26, 2019

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

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

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

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

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

Dear -----------------

   This letter responds to a letter dated April 12, 2019, and subsequent

correspondence, 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 to
an association taxable as a corporation effective Date 3.

                                                 FACTS

   The information submitted states that on Date 1, X was formed under laws of

Country. X’s default classification was as an association taxable as a corporation for
federal tax purposes. Effective Date 2, X, a foreign eligible entity, filed a Form 8832,
Entity Classification Election, to change its classification to a disregarded entity. As of
Date 3, X had a change in ownership of more than fifty percent that would satisfy
§ 301.7701-3(c)(1)(iv).
PLR-107319-19

                               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 as provided in § 301.7701-3. Elections
are necessary only when an eligible entity does not want to be classified under the
default classification or when an eligible entity chooses to change its classification.

     Section 301.7701-3(b)(2)(i) provides that, unless the entity elects otherwise, a

foreign eligible entity is (A) a partnership if it has two or more members and at least one
member does not have limited liability; (B) an association if all members have limited
liability; or (C) disregarded as an entity separate from its owner if it has a single owner
that does not have limited liability.

    Section 301.7701-3(c)(1)(i) provides 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 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 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 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 information submitted and the representations made, we

consent to X changing its classification to an association taxable as a corporation for
federal tax purposes effective Date 3 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 Date 3. X must submit that Form 8832 with a copy of this
letter attached.
PLR-107319-19

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

the tax consequences of any transaction or item discussed or referenced in this letter.
Specifically, we express or imply no opinion regarding whether X is otherwise eligible to
make the election.

   This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the

Internal Revenue Code provides that it may not be used or cited as precedent.

   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.

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to X’s authorized representatives.

                                             Sincerely,



                                             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