Foreign entity allowed an early classification change

Plain-English summary

A foreign eligible entity asked for consent to change its federal tax classification from a corporation to a partnership less than 60 months after its prior election. The entity represented that more than 50 percent of its ownership had changed since the earlier election. Treasury Regulation § 301.7701-3 generally bars another elective classification change during the following 60 months, but permits the Commissioner to consent when the ownership-change condition is met. Based on the submitted facts and representations, the IRS consented to the early classification change. The ruling did not decide whether the entity otherwise qualified to make the election.

Ruling snapshot

• Question: Could the foreign eligible entity change from corporate to partnership classification within 60 months of its prior election?
• Outcome: Approved.
• Key authorities: Treas. Reg. §§ 301.7701-2 and 301.7701-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201643012 Third Party Communication: None
Release Date: 10/21/2016 Date of Communication: Not Applicable
Index Number: 7701.00-00
Person To Contact:
------------------------- -----------------------, ID No. -------------------
----------------------------------------- ---------------------------------------------------
-------------------- Telephone Number:
------------------------------ ----------------------
-------------------------- Refer Reply To:
CC:PSI:1
PLR-119949-16
Date:
July 05, 2016

Legend

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

--

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

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

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

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

This letter responds to a letter dated December 23, 2015, and subsequent
correspondence, submitted on behalf of X by its authorized representatives, 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
an association taxable as a corporation to a partnership.

                                                 FACTS

X was formed under the laws of Country. X, an eligible entity, elected to be treated as a
corporation for federal tax purposes effective Date 1. X represents that as of Date 2, X
had a change of ownership of more than fifty percent that would satisfy § 301.7701-
3(c)(1)(iv).
PLR-119949-16 2

                                        LAW

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. An eligible
entity with a single owner can elect to be classified as an association (and thus a
corporation under § 301.7701-2(b)(2)) or to be disregarded as an entity separate from
its owner.

Section 301.7701-3(b)(2)(i) provides that, unless it 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, Entity Classification
Election, 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 on the facts submitted and the representations made, we consent to X changing
its classification for federal tax purposes less than 60 months after its previous
classification change.

Except as expressly provided herein, we express or imply no opinion concerning the tax
consequences of any aspect of any transaction or item discussed or referenced in this
PLR-119949-16 3

letter. Specifically, we express or imply no opinion regarding whether X was otherwise
eligible to make the election. In addition, if protective elections were filed, there is no
inference that they were or are valid.

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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent
to X's authorized representatives.

                                    Sincerely,


                                    Laura C. Fields
                                    Laura C. Fields
                                    Senior Technician Reviewer, Branch 1
                                    Office of the Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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