LLC could change early to disregarded entity status

Plain-English summary

A limited liability company had elected to be taxed as a corporation and wanted to change to disregarded entity status less than 60 months later. A new owner had acquired more than 50 percent of the company, satisfying the ownership-change condition for the IRS to permit an early classification change. Based on the submitted information and representations, the IRS consented to the change under Treasury Regulation Section 301.7701-3(c)(1)(iv). The company was directed to file Form 8832 under Revenue Procedure 2009-41 for the requested effective date.

Ruling snapshot

• Question: Could the LLC change from corporate to disregarded entity status within 60 months of its earlier election?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 301.7701-2 and 301.7701-3; Rev. Proc. 2009-41

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 202413008                                              Third Party Communication: None
Release Date: 3/29/2024                                        Date of Communication: Not Applicable
Index Number: 7701.00-00
                                                               Person To Contact:
---------------------                                          --------------------------, ID No. ----------------
--------------------------------                               -----------------
---------------------------------------------------            Telephone Number:
------------------------                                       --------------------
--------------------------------------------------             Refer Reply To:
                                                               CC:PSI:B01
                                                               PLR-113485-23
                                                               Date:
                                                               December 19, 2023




                                                      LEGEND

X            =       -----------------------------------------------------------
Date 1       =       -----------------------------
Date 2       =       -------------------------------
Date 3       =       -----------------------------
Date 4       =       -----------------------------
State        =       ----------------


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

This letter responds to a letter dated July 6, 2023, and subsequent correspondence,
submitted on behalf of X by X’s authorized representative, 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 entity classification from an
association taxable as a corporation to a disregarded entity for federal tax purposes
effective Date 4.


                                                      FACTS

The information submitted states that X was formed under the laws of State as a limited
liability company on Date 1. X subsequently elected to be classified as an association
taxable as a corporation for federal tax purposes effective Date 2. On Date 3, a new
owner acquired more than fifty percent of X, satisfying § 301.7701-3(c)(1)(iv).

PLR-113485-23                                  2

                                  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 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(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.

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 the 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. An election by a newly formed eligible entity
that is effective on the date of formation is not considered a change for purposes of
§ 301.7701-3(c)(1)(iv).


                                      CONCLUSION

Based solely on the information submitted and the representations made, we consent to
X changing its entity classification to a disregarded entity for federal tax less than 60
months after its previous entity classification election under § 301.7701-3(c)(1)(iv).
Accordingly, X should file a Form 8832 pursuant to Rev. Proc. 2009-41, 2009-39 I.R.B.
439, with the appropriate service center to elect to be disregarded as an entity separate

PLR-113485-23                                  3

from its owner effective Date 4. A copy of this letter should be attached to the Form
8832.

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. Specifically, we express or imply no opinion regarding whether X 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.

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

                                       Sincerely,

                                       Holly Porter
                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)

                                       Sincerely,


                                   By:______________/s/_________________
                                      Caroline E. Hay
                                      Senior Technician Reviewer, Branch 1
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)




Enclosure
      Copy for § 6110 purposes


cc: