IRS consents to another early disregarded-entity election

Plain-English summary

A foreign eligible entity had elected disregarded status, subsequently elected association status taxable as a corporation, and then underwent a greater-than-50-percent ownership change. It requested permission to elect disregarded status again before the standard 60-month waiting period ended. The entity met the regulation's condition that more than half of its ownership at the new election date be held by persons who owned no interest at the time of the prior election. The IRS consented and directed the entity to file Form 8832 with the ruling attached.

Ruling snapshot

• Question: May the entity make an early classification election after more than half of its ownership changed?
• Outcome: approved (the IRS consented to disregarded-entity status effective on the requested date)
• Key authorities: Treas. Reg. §§ 301.7701-2(b) and 301.7701-3(a), (c)(1)(iii), and (c)(1)(iv)

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202021012                                             Third Party Communication: None
 Release Date: 5/22/2020                                       Date of Communication: Not Applicable
 Index Number: 7701.00-00
                                                               Person To Contact:
 ------------------------------------                          --------------------------, ID No. ----------------
 -----------------------------------------------------------   -----------------
 ---------------------------                                   Telephone Number:
 ---------------------------                                   --------------------
 ---------------------------------------------                 Refer Reply To:
                                                               CC:PSI:B01
                                                               PLR-120409-19
                                                               Date:
                                                               February 21, 2020


LEGEND
X           = -----------------------------------------------------------
      -----------------------

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

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

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

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

Date 4           = --------------------------

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

This letter responds to a letter dated September 3, 2019, 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 X’s
classification from an association taxed as a corporation to a disregarded entity effective
Date 4.

FACTS

The information submitted states that X was formed under the laws of Country on Date

1. X elected to be treated as a disregarded entity effective Date 1.

Prior to Date 3, X filed an election to change its classification to an association taxable
as a corporation effective Date 2.

On Date 3, X had a change in ownership of more than fifty percent that would satisfy §
301.7701-3(c)(1)(iv).
PLR-120409-19                                  2


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)(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 facts submitted and representations made, we consent to X
changing its classification to a disregarded entity effective Date 4 under § 301.7701-
3(c)(1)(iv). X should file a Form 8832, Entity Classification Election, with the appropriate
service center with a copy of this letter attached.

Except as specifically set forth above, we express or imply no opinion concerning the
federal tax consequences of any aspect of any transaction or item either discussed or
referenced in this letter. 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
materials submitted in support of the ruling request, it is subject to verification on
examination.
PLR-120409-19                               3

We are directing the ruling only to the taxpayer who requested it. Section 6110(k)(3) of
the code provides that it may not be used or cited as precedent. Pursuant to a power of
attorney on file with this office, we are sending a copy of this letter to X’s authorized
representatives.

Sincerely,


Joy C. Spies
Joy C. Spies
Senior Technician Reviewer, Branch 1
Office of Associate Chief Counsel
(Passthroughs & Special Industries)



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



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