Company in liquidation gets 120 days to file a corporate classification election

Plain-English summary

A state court placed a limited liability company into liquidation and appointed a receiver whose deputy took control of the company's assets and operations. The deputy relied on a tax professional who failed to advise that Form 8832 was needed to classify the company as an association taxable as a corporation from the liquidation date. The IRS found that the company acted reasonably and in good faith and that relief would not prejudice the government. It granted 120 days to file Form 8832 with the requested effective date. Relief is contingent on filing all required federal returns from that date to the present consistently with corporate classification.

Ruling snapshot

• Question: May the company receive extra time to elect corporate classification under Treas. Reg. § 301.7701-3?
• Outcome: Approved. It received 120 days to file Form 8832 and the required returns.
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                     Department of the Treasury
                                                              Washington, DC 20224

 Number: 202103008                                            Third Party Communication: None
 Release Date: 1/22/2021                                      Date of Communication: Not Applicable
 Index Number: 7701.00-00, 9100.00-00,
               9100.31-00                                     Person To Contact:
                                                              -------------------, ID No. -----------------
 --------------------------------------------------------     Telephone Number:
 ---------------------------------------------                --------------------
 ----------------------------------------------               Refer Reply To:
 --------------------------                                   CC:PSI:B03
                                                              PLR-110516-20
                                                              Date:
                                                              October 23, 2020




                                                   LEGEND

 Company                     = ---------------------------------------------------------------------------------
                               -----------------------
 A                           = ------------------------------
 X                           = ------------------
 Agency                      = ------------------------------------------
 Commissioner                = -----------------------------------------------------------------------
 State                       = --------
 Court                       = --------------------------------------------------------
 Liquidation Order           = ---------------------------------------------------------------------------------
                               ---------------------------------------------------------------------------------
                               -----------
 Special Deputy              = ---------------------------------------------------------------------------------
 Receiver                      ----------------------------------------------
 Date 1                      = -----------------------
 Date 2                      = -------------------------
 Date 3                      = -----------------------
 Date 4                      = -------------------------
 Date 5                      = ---------------------
 Date 6                      = --------------
 Year 1                      = -------
 Year 2                      = -------
 Year 3                      = -------
 Year 4                      = ------

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

      This letter responds to a letter dated April 20, 2020, and subsequent
correspondence, submitted on behalf of Company by Company's authorized
representative, requesting an extension of time under § 301.9100-3 of the Procedure

and Administration Regulations to file an election under § 301.7701-3 to be treated as
an association taxable as a corporation federal tax purposes.

                                          FACTS

       According to the information submitted, Company was formed on Date 1 under
the laws of State as limited liability company. At the time of its formation, Company was
wholly owned by X, a State limited liability company that was formed by A on Date 1. A
was the sole member and manager of X. Information submitted indicates a second
owner may have subsequently acquired an interest in X.

       On Date 3, Agency sought and received Liquidation Order from Court to place
Company into liquidation under State law. Court appointed Commissioner liquidator
and receiver and appointed Special Deputy Receiver to act on behalf of Commissioner.
Under the Liquidation Order, the Special Deputy Receiver took possession of
Company’s operations and assets for liquidation. Since Date 3 and as directed by the
Liquidation Order, Special Deputy Receiver has controlled Company under the
supervision of Court.

        The Special Deputy Receiver represents that it relied on a qualified tax
professional to provide tax advice regarding Company, however, the tax professional
failed to advise the Special Deputy Receiver of the need to file Form 8832, Entity
Classification Election. Thus, the Special Deputy Receiver did not timely file Form
8832, Entity Classification Election, to elect for Company to be classified as an
association effective Date 3.

         Special Deputy Receiver on behalf of Company represents that it has acted
reasonably and in good faith, and that granting relief will not prejudice the interests of
the Government. It is further represented that such relief would not result in a lower tax
liability in the aggregate for all taxable years to which the request applies.

                                  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. An eligible entity with at least two members can elect to be classified as
either an association (and thus a corporation under § 301.7701-2(b)(2)) or 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(c)(1)(i) provides that 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, Entity Classification Election, with the appropriate service center.
Under § 301.7701-3(c)(1)(iii), this election will be effective on the date specified by the

entity on Form 8832 or on the date filed if no such date is specified. The date specified
on Form 8832 cannot be more than 75 days prior to the date on which the election is
filed and no more than 12 months after the date the election 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) provides
that the term “regulatory election” includes an election whose due date is prescribed by
a regulation published in the Federal Register.

       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 standards the Commissioner will use to
determine whether to grant an automatic extension 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 (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer
acted reasonably and in good faith, and that granting relief will not prejudice the
interests of the government.

                                      CONCLUSION

        Based solely on the facts submitted and representations made, we conclude that
the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a result,
Company is granted an extension of time of 120 days from the date of this letter to
make an entity classification election to be treated as an association taxable as a
corporation by filing a Form 8832, effective Date 3, with the appropriate service center.
A copy of this letter should be attached to the election. A copy of this letter is attached
for this purpose.

       This ruling is contingent upon Company filing within 120 days of this letter any
and all required Federal income tax and information returns from Date 3 to the present
consistent with the requested relief.

       Except as specifically set forth 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. In addition, § 301.9100-1(a) provides that the granting of an extension of time for
making an election is not a determination that the taxpayer is otherwise eligible to make
the election.

       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.

       This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent. In accordance with a
power of attorney on file with this office, we are sending copies of this letter to your
authorized representatives.

                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)




                                  By: _________________________
                                      Adrienne M. Mikolashek
                                      Chief, Branch 3
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)


Enclosures (2)
      A copy of this letter
      A copy for § 6110 purposes


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