IRS permits a foreign entity to change to disregarded status within 60 months

Plain-English summary

A foreign eligible entity had elected to be taxed as a corporation and later wanted to change its classification to a disregarded entity. Normally, an entity cannot make another classification election within 60 months of its prior election. The entity experienced a greater-than-50-percent ownership change that satisfied the exception in Treas. Reg. § 301.7701-3(c)(1)(iv). The IRS consented to the classification change with the requested effective date. It also granted 120 days to file Form 8832 under Rev. Proc. 2009-41.

Ruling snapshot

• Question: Could the foreign eligible entity change from corporate classification to disregarded-entity status within the 60-month limitation period?
• Outcome: Approved.
• Key authorities: Treas. Reg. §§ 301.7701-2 and 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: 202053001 Third Party Communication: None
Release Date: 12/31/2020 Date of Communication: Not Applicable
Index Number: 7701.00-00 Person To Contact:

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

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

                                                           CC:PSI:03
                                                           PLR-107800-20

                                                           Date:
                                                           September 21, 2020

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

Y = --------------------------------------------------

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

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

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

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

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

   This letter responds to a letter dated March 5, 2020, 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 Y’s classification from an association taxable
as a corporation to a disregarded entity effective Date 3.

                                                    FACTS

   The information submitted states that on Date 1, Y, an entity formed under the

laws of Country, elected to be classified as an association taxable as a corporation for
federal income tax purposes. In a series of transactions concluding on Date 2, Y had a
change in ownership of more than fifty percent that would satisfy the requirements of
§ 301.7701-3(c)(1)(iv).
PLR-107800-20 2

                               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 Y changing its classification to a disregarded entity for federal tax purposes,
effective Date 3 under § 301.7701-3(c)(1)(iv). Y is granted an extension of time of 120
days from the date of this letter to file a Form 8832, Entity Classification Election, filed
pursuant Rev. Proc. 2009-41, with the appropriate service center. Y should attach a
copy of this letter to the election.
PLR-107800-20 3

   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 Y 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,

                                             /s/

                                             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

cc: