IRS allows F reorganization treatment after an invalid interstate domestication

Plain-English summary

A corporation attempted to domesticate from one state to another and dissolved in its original state. It later discovered that the original state's law did not permit the domestication, leaving it unintentionally unincorporated in either state until it incorporated in a third state. Throughout the gap, the business continued operating as a corporation and filing Form 1120 returns. It planned to elect retroactive classification as an association taxable as a corporation effective on the dissolution date. The IRS ruled that the dissolution, entity-classification election, and later reincorporation would not prevent F reorganization treatment under IRC § 368(a)(1)(F) and would not create a taxable liquidation under IRC §§ 331 and 336. The IRS did not rule on whether the company qualified for automatic late-election relief under Rev. Proc. 2009-41.

Ruling snapshot

• Question: Could an invalid domestication followed by an entity-classification election and reincorporation qualify as an F reorganization without a taxable liquidation?
• Outcome: approved (F reorganization treatment was not precluded and no taxable liquidation resulted)
• Key authorities: IRC §§ 331, 336, 368(a)(1)(F); Treas. Reg. §§ 301.7701-1, -2, -3, -4; Rev. Proc. 2009-41

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202031002 Third Party Communication: None
Release Date: 7/31/2020 Date of Communication: Not Applicable
Index Number: 331.00-00, 336.01-00,
368.06-00, 7701.01-00 Person To Contact:
------------------------, ID No. ---------------
--------------------- Telephone Number:
------ --------------------
------------------ Refer Reply To:
-------------------------- CC:CORP:3
------------------------------ PLR-124143-19
Date:
March 25, 2020

Legend

Taxpayer = -------------------

State A = -------------

State B = --------------------

State C = -------------

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

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

State A Dissolution Date = ------------------

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

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

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

This letter responds to your request for rulings dated October 3, 2019 as modified and
supplemented on February 18, 2020. The material facts and information are
summarized as follows.

PLR-124143-19 2

Taxpayer was incorporated in State A on Date 1. Taxpayer filed Articles of
Domestication in State B on Date 2. Taxpayer was dissolved in State A on the State A
Dissolution Date.

On Date 3, Taxpayer discovered that the domestication in State B was invalid because,
unbeknownst to Taxpayer, State A law did not permit State A corporations to
domesticate to another State. As a result, Taxpayer was inadvertently not incorporated
in either State A or in State B as of the State A Dissolution Date. On Date 4, to partially
remedy this issue, Taxpayer incorporated in State C.

                                 Representations

a) Taxpayer has continued to operate and hold itself out as a corporate entity since
the State A Dissolution Date.

b) Taxpayer has continued to timely file U.S. federal income tax returns on I.R.S.
Form 1120 since the State A Dissolution Date.

c) Taxpayer (through its directors, employees and agents) and its shareholders
have continued to carry on a trade, business, financial operation, and venture
and divide the profits therefrom since the State A Dissolution Date and therefore
has been a separate entity for federal tax purposes as described in § 301.7701-
1(a)(2) of the Procedure and Administration Regulations since the State A
Dissolution Date.

d) Taxpayer has not been a corporation under § 301.7701-2(b)(1) since the State A
Dissolution Date.

e) Taxpayer has not been a trust under § 301.7701-4 since Date 1.

f) Taxpayer, a business entity eligible to make an entity classification election under
§ 301.7701-3, intends to file an election under § 301.7701-3 to be classified as
an association taxable as a corporation effective on the State A Dissolution Date,
pursuant to Rev. Proc. 2009-41, 2009-39 I.R.B. 439, within thirty (30) days of
receipt of this private letter ruling.

                                      Rulings

Based solely on the information submitted and the representations set forth above, we
rule as follows:

1. The State A Dissolution of Taxpayer on the State A Dissolution Date, together
   with the entity classification election effective as of the State A Dissolution Date,
   will not preclude either (i) the transition of Taxpayer’s legal form of organization
   from a State A statutory corporation to an unincorporated association, or (ii) the
   subsequent reincorporation of the Taxpayer as a State C corporation from

PLR-124143-19 3

     qualifying as a reorganization under section 368(a)(1)(F) of the Internal Revenue
     Code.

  2. The State A Dissolution of Taxpayer on the State A Dissolution Date together
     with the entity classification election as of the State A Dissolution Date, will not
     result in a taxable liquidation under sections 331 and 336 of the Code.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalties 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.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. In addition, no opinion is expressed or implied regarding whether Taxpayer
meets the requirements specified in Rev. Proc. 2009-41 for automatic relief to make a
late entity classification election.

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 the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representatives.

                                      Sincerely,


                                      _______________________________
                                      Gerald B. Fleming
                                      Senior Technician Reviewer, Branch 2
                                      Office of Associate Chief Counsel (Corporate)

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