Five acquired entities could change to disregarded status within 60 months

Plain-English summary

A buyer acquired a corporation whose five domestic eligible entities had
previously elected corporate classification, and the buyer and seller made
Section 338(h)(10) elections for the acquisition. The entities wanted to become
disregarded entities on the next day, but that date fell within 60 months of
their prior classification elections. The IRS consented to the early changes
and found that the entities satisfied the standards for regulatory-election
relief. Each entity received 120 days to file Form 8832 electing disregarded
status with the requested effective date. The ruling did not determine whether
they were otherwise eligible to make the elections.

Ruling snapshot

• Question: May the five acquired entities change from corporate to disregarded status within 60 months of their prior elections and file the Forms 8832 late?
• Outcome: Approved; each entity received 120 days to file
• Key authorities: IRC § 338(h)(10); Treas. Reg. §§ 301.7701-3(c)(1)(iv), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202409004 Third Party Communication: None
Release Date: 3/1/2024 Date of Communication: Not Applicable
Index Number: 9100.31-00, 7701.00-00
Person To Contact:
------------------------------------------------------------ --------------------, ID No. -----------------
----- Telephone Number:
------------------------------------------- --------------------
------------------------------------------ Refer Reply To:
------------------------------ CC:PSI:B01

                                                            PLR-111908-23
                                                            PLR-111909-23
                                                            PLR-111910-23
                                                            PLR-111911-23
                                                            PLR-111912-23
                                                            Date:
                                                            December 06, 2023

LEGEND

X = ----------------------------------------
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Y = ---------------------------------------------------------
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Entity 1 = -------------------------------------------------------------
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Entity 2 = --------------------------------------
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Entity 3 = -----------------------------------------------------
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Entity 4 = -------------------------------------------------
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Entity 5 = ----------------------------------------------
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State = -------------

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

Date 2 = -------------------------
PLR-111908-23 through PLR-111912-23 2

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

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

This responds to a letter dated June 1, 2023, submitted on behalf of Entity 1, Entity 2,
Entity 3, Entity 4, and Entity 5 (collectively, Taxpayers), by the authorized representatives
of the Taxpayers, requesting a ruling under § 301.9100-3 and § 301.7701-3(c)(1)(iv) of
the Procedure and Administration Regulations. Specifically, your letter requests the
Service’s consent to change the Taxpayers’ classifications from associations taxable as
corporations to disregarded entities for Federal tax purposes, effective Date 3.

                                              FACTS

The information submitted states that X is a domestic corporation formed under the laws
of State. Y is a domestic corporation formed under the laws of State, and wholly owns,
directly or indirectly, Entity 1, Entity 2, Entity 3, Entity 4, and Entity 5. Each of Entity 1,
Entity 2, Entity 3, Entity 4, and Entity 5 are domestic eligible entities under § 301.7701-3
and each filed a Form 8832, Entity Classification Election, electing to be classified as an
association taxable as a corporation, effective Date 1. Each entity’s respective entity
classification elections were not their initial classification elections effective as of the date
of their respective formations.

On Date 2, X acquired all the issued and outstanding stock of Y. Taxpayers represent
that X and the seller of Y jointly filed § 338(h)(10) elections with respect to the acquisition
of Y, Entity 1, Entity 2, Entity 3, Entity 4, and Entity 5.

Entity 1, Entity 2, Entity 3, Entity 4, and Entity 5 each desired to file Form 8832, Entity
Classification Election, to elect to be classified as an entity disregarded as separate from
its owner, effective Date 3 (the day after Date 2). However, since Date 3 is within sixty
months of Date 1, Entity 1, Entity 2, Entity 3, Entity 4, and Entity 5 could not timely file the
election to be effective Date 3 without the permission of the Commissioner. Accordingly,
Entity 1, Entity 2, Entity 3, Entity 4, and Entity 5 prepared this request to change their
classification from associations taxable as corporations to disregarded entities for Federal
tax purposes and for an extension of time under § 301.9100-3 to file the entity
classification elections under § 301.7701-3, effective Date 3.

                                   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
PLR-111908-23 through PLR-111912-23 3

necessary only when an eligible entity chooses to be classified initially as other than the
default classification or when an eligible entity chooses to change its classification.

Section 301.7701-3(b)(1) provides that unless the entity elects otherwise, a domestic
eligible entity is: (i) a partnership if it has two or more members; or (ii) disregarded as an
entity separate from its owner if it has a single owner.

An eligible entity with at least two owners 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, in part, 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 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
such date 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. If a purchasing
corporation makes an election under § 338 regarding an acquired subsidiary, an entity
classification election for the acquired subsidiary can be effective no earlier than the day
after the acquisition date (within the meaning of § 338(h)(2)).

Section 301.7701-3(c)(1)(iv) provides that if an eligible entity makes an election 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. An election by a
newly formed eligible entity that is effective on the date of formation is not considered a
change for purposes of this paragraph.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension
of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory
election, or a statutory election (but not more than 6 months except in the case of a
taxpayer who is abroad), under all subtitles of the Internal Revenue Code (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.
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Section 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 guidelines for granting extensions of time for making
elections that do not meet the requirements of § 301.9100-2. Section 301.9100-3(a)
provides that requests for relief subject to § 301.9100-3 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 the grant of relief will not prejudice the interests of the Government.

                                  CONCLUSION

Based solely on the facts submitted and the representations made, we conclude that the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Further, we consent
to Entity 1, Entity 2, Entity 3, Entity 4, and Entity 5 changing their entity classification
elections less than 60 months after their previous entity classification elections under
§ 301.7701-3(c)(1)(iv). Accordingly, Entity 1, Entity 2, Entity 3, Entity 4, and Entity 5 are
each granted an extension of time of 120 days from the date of this letter to make an
election to be treated as an entity disregarded as separate from its owner for Federal tax
purposes effective Date 3. Each entity must make the election by filing a properly
executed Form 8832, Entity Classification Election, with the appropriate service center. A
copy of this letter should be attached to the Form 8832.

Except as specifically set forth above, we express or imply no opinion concerning the
Federal tax consequences of the facts or transactions described above under any other
provision of the Code and regulations thereunder. 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 rulings contained in this letter are 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 request for rulings, 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.
PLR-111908-23 through PLR-111912-23 5

In accordance with a power of attorney on file with this office, we are sending a copy of
this letter ruling to your authorized representatives.

                                     Sincerely,

                                     Holly Porter
                                     Associate Chief Counsel
                                     (Passthroughs & Special Industries)

                                               /s/
                                     By:
                                               Jennifer N. Keeney
                                               Senior Counsel, Branch 1
                                               Office of the Associate Chief Counsel
                                               (Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes

cc: