Reg. 301.7701-3 Classification of Certain Business Entities

Internal Revenue Service
Number: 201622020
Release Date: 5/27/2016
Index Number: 7701.00-00, 9100.31-00
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LEGEND
X = ---
---
State = ---
D1 = ---
D2 = ---
D3 = ---
Dear ---:
Department of the Treasury
Washington, DC 20224
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
---,
ID No. ---
Telephone Number:
---
Refer Reply To:
CC:PSI:B01
PLR-130088-15
Date:
February 23, 2016
This responds to the letter dated September 10, 2015, and related correspondence, submitted on behalf of X, requesting a ruling that X’s election to be classified as an association taxable as a corporation was an initial classification election, and not a change in classification, for purposes of § 301.7701-3(c)(1)(iv) of the Procedure and Administration Regulations.
PLR-130088-15 2

# FACTS

The information submitted states that X was formed as a limited liability company under the laws of State on D1. Prior to D2, X had no assets, income, deductions, liabilities, bank accounts, business operations, or board meetings, and was dormant.
On D2, X purchased a residential and retail property and began its business operations.
X elected to be classified as an association taxable as a corporation, by filing a Form
8832, Entity Classification Election, effective D3, a date between D1 and D2 (“corporate classification election”).

# 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(c)(1)(i) provides that, subject to the limitation of § 301.7701-
3(c)(1)(iv), an eligible entity may elect to be classified other than its default classification, or to change its classification, by filing Form 8832, with the service center designated on Form 8832.
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 (other than an election made by an existing entity to change its classification as of the effective date of this section), 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).
PLR-130088-15 3

# CONCLUSION

Based solely upon the facts submitted and the representations made, we conclude that X’s corporate classification election was an initial classification election effective D2, and not a change in classification, for purposes of § 301.7701-3(c)(1)(iv).
Except as specifically set forth above, no opinion is expressed or implied concerning the federal tax consequences of the above-described facts under any other provision of the Code.
This ruling is directed 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.
In accordance with the Power of Attorney on file with this office, a copy of this letter ruling will be sent to X’s authorized representatives.
Sincerely,
Associate Chief Counsel
(Passthroughs & Special Industries)
By: 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 cc: