Early entity-classification change and late filing allowed

Plain-English summary

A single-member limited liability company had elected corporate classification and was treated as a qualified REIT subsidiary through a chain of disregarded entities. After a taxable spin-off placed the chain under a different REIT, the company's direct owner issued profits interests and became a partnership, ending the company's qualified REIT subsidiary status. The company wanted to elect disregarded-entity treatment even though 60 months had not passed since its prior classification election, and it could no longer file Form 8832 timely for the desired effective date. The IRS consented to the classification change and granted 120 days to file the late election. It did not decide whether the company was otherwise eligible for the election, whether either parent qualified as a REIT, or whether the company had been a qualified REIT subsidiary.

Ruling snapshot

• Question: May the company change classification within 60 months of its prior election and file Form 8832 late for disregarded-entity treatment?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 301.7701-3(c)(1)(iii), 301.7701-3(c)(1)(iv), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201740011                                              Third Party Communication: None
Release Date: 10/6/2017                                        Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
                                                               Person To Contact:
------------------------------------------------------------   -----------------------------, ID No. -------------
--------------                                                 -----------------
------------------------------------------                     Telephone Number:
-------------------------------------------                    ----------------------
------------------------------                                 Refer Reply To:
                                                               CC:PSI:01
                                                               PLR-108806-17
                                                               Date:
                                                               June 27, 2017


Legend
X                = ------------------------------------------------------------------------------------------------
                   -----------------------------------
Y                = ------------------------------------------------------------------------------------------------
                   -----------------------------------------------------------------------------
Z                = ------------------------------------------------------------------------------------------------
                   ------------------------------------------------------------------------------------------------
                   ----------------------------------------------------
PRS              = ------------------------------------------------------------------------------------------------
                   ------------------------------
State            = --------------
Date 1           = -----------------
Date 2           = ----------------------
Date 3           = ------------------------
Date 4           = -----------------
Date 5           = -----------------


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

       This letter responds to a letter dated February 16, 2017, submitted on behalf of
X, requesting a ruling under § 301.7701-3(c)(1)(iv) and § 301.9100-3 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
disregarded entity effective Date 5.

                                                     FACTS

         The information submitted states that on Date 1, X was formed as a limited
liability company under the laws of State. At the time of formation, X was a wholly-
PLR-108806-17                                  2

owned subsidiary of PRS and was treated as a disregarded entity for federal tax
purposes. PRS was formed as a limited partnership under the laws of State and was a
wholly-owned subsidiary of Y and was treated as a disregarded entity for federal tax
purposes. Y is a REIT for federal tax purposes. X filed Form 8832, Entity Classification
Election, to be classified as an association effective Date 2. Because Y is a REIT, X’s
election to be classified as an association caused X to be treated as a qualified REIT
subsidiary of Y.

      In a taxable spin-off transaction on Date 3, PRS became a wholly-owned
subsidiary of Z and was treated as a disregarded entity for federal tax purposes. X
represents that Z is a REIT for federal income tax purposes. Effective Date 3, X
represents that it became a qualified REIT subsidiary of Z.

      On Date 4, PRS issued profits interests to certain individuals providing services
to PRS. Effective Date 4, PRS became a partnership for federal income tax purposes,
thereby terminating X’s status as a qualified REIT subsidiary.

       In conjunction with this change in the ownership of X, X desires to change its
federal tax classification. Since the sixty month post-election period under § 301.7701-
3(c)(1)(iv) had not expired, X submitted this ruling request seeking the Commissioner’s
consent to make an elective change in classification.

        Furthermore, X intended to make the elective change in entity classification
effective Date 5. However, X can no longer timely file a Form 8832, Entity Classification
Election, to make the election effective as of Date 5.

                                   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. 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)(1) provides that, except as provided in § 301.7701-
3(b)(3), 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.

       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.
PLR-108806-17                                 3

        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 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. If
an election specifies an effective date more than 75 days prior to the date on which the
election is filed, it will be effective 75 days prior to the date it was 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.

        Section 301.9100-1(c) provides that the Commissioner in exercising the
Commissioner's discretion 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 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.

       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 the 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 information 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. Further, we conclude that X has satisfied the
requirements of sections 301.9100-1 and 301.9100-3. As a result, X is granted an
extension of time of 120 days from the date of this letter to file Form 8832 with the
appropriate service center to elect to be classified as a disregarded entity for federal tax
purposes effective Date 5. A copy of this letter should be attached to the Form 8832.
PLR-108806-17                                   4


        Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any transaction or item discussed or referenced in
this letter. Specifically, no opinion is expressed or implied regarding whether X is
otherwise eligible to make the election. Further, no opinion is expressed with regard to
whether Y or Z qualifies as a REIT under subchapter M of the Code; or whether X was a
qualified REIT subsidiary of Y or Z.

      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.



                                         Sincerely,

                                         Associate Chief Counsel
                                         (Passthroughs & Special Industries)


                                         Laura C. Fields
                                   By:
                                         Laura C. Fields
                                         Senior Technician Reviewer, Branch 1
                                         (Passthroughs & Special Industries)


Enclosures (2)
 Copy of Letter
 Copy for § 6110 purposes