PLR 200033008: extra time to elect partnership classification

Plain-English summary

A foreign entity with two owners, both shielded from liability, would be classified as an association under the default entity classification rules. Its owners intended to elect partnership treatment but did not file Form 8832 on time. The IRS found that the requirements for late election relief were met and gave the entity 60 days from the letter to file the election. The ruling did not decide the U.S. tax consequences of the election, including the partnership's basis in its assets.

Ruling snapshot

• Question: May the foreign entity file a late election to be treated as a partnership?
• Outcome: Approved. The entity has 60 days from the ruling to file Form 8832.
• Key authorities: Treas. Reg. §§ 301.7701-3(b) and (c), 301.9100-1, and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                           Department of the Treasury

Index Number: 9100.31-00                           Washington, DC 20224



                                                   Person to Contact:
Number: 200033008                                  Telephone Number:
Release Date: 8/18/2000
                                                   Refer Reply To:
                                                   CC:DOM:P&SI:3 PLR-113550-99
                                                   Date:
                                                   May 8, 2000


LEGEND:

Country         =

X               =

Y               =

Z               =

A               =

B               =

D               =

Dear

      This letter responds to a letter dated August 2, 1999, written on behalf of X,
requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to file an election under § 301.7701-3(c).

                                           FACTS

        According to the information submitted, X is an entity organized under the laws
of Country that is not required to be classified as a corporation under § 301.7701-
2(b)(1), (3), (4), (5), (6), (7), or (8). X has two shareholders, A and B, each of whom
has limited liability. Accordingly, absent a check-the-box election, X is a foreign eligible
entity classified as an association under § 301.7701-(3)(b)(2)(i)(B).

       X’s shareholders also own interests in two other entities organized under the
laws of Country that are not required to be classified as corporations under § 301.7701-
2(b)(1), (3), (4), (5), (6), (7), or (8). A owns the majority interest in entities Y and Z, and
B owns a minority interest in Y. Both Y and Z have two or more shareholders and both
have a shareholder that does not have limited liability. Accordingly, absent a check-the-
PLR-113550-99                                 2


box election, Y and Z are foreign eligible entities classified as partnerships under        §
301.7701-(3)(b)(2)(i)(A).

       X’s shareholders desired to have X, as well as Y and Z, classified as a
partnership. They intended to have X file an election under Form 8832, Entity
Classification Election, to elect partnership status as X’s classification effective D.
However, the Form 8832 was not timely filed.

       X requests a ruling that it will be recognized as a partnership effective D. X
represents that it has not sold any assets since D, and that it has no present plan to sell
any assets. X also represents that its classification was not relevant under § 301.7701-
3(d) during the sixty months prior to D.

                                   LAW AND ANALYSIS

          Section 301.7701-3(c)(1)(i) provides that an eligible entity may elect to be
classified as other than its default classification in § 301.7701-3(b) by filing Form 8832
with the appropriate service center. Section 301.7701-3(b)(2)(i)(B) provides that,
unless the entity elects otherwise, a foreign eligible entity is classified as an association
if all its members have limited liability.

        Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of
time to make a regulatory election, or a statutory election (but no more than six 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) defines the term "regulatory election" as an election whose
due date is prescribed by a regulation published in the Federal Register, or a revenue
ruling, revenue procedure, notice, or announcement published in the Internal Revenue
Bulletin.

       Sections 301.9100-1 through 301.9100-3 provide the standards the
Commissioner will use to determine whether to grant an extension of time to make a
regulatory election.

       Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2.

       Requests for relief under § 301.9100-3 will be granted when the taxpayer
provides evidence to establish that the taxpayer acted reasonably and in good faith,
and that granting relief will not prejudice the interests of the Government.

                                       CONCLUSION

       In the present situation, good cause has been shown and the other requirements
PLR-113550-99                                  3


of §§ 301.9100-1 and 301.9100-3 have been satisfied. Consequently, X is granted an
extension of time for making the § 301.7701-3(c) election until 60 days following the date
of this letter. The election should be made by following the procedure set forth in Form
8832. A copy of this letter should be attached to the election. One is enclosed
for that purpose.

       Except as specifically set forth above, no opinion is expressed or implied as to the
federal tax consequences of the transaction described above under any other provision
of the Code. Specifically, no opinion is expressed regarding the U.S. tax consequences
of making the election, including, but not limited to, the basis of the assets in the hands
of the partnership.

      This ruling is directed only to the taxpayer on whose behalf it was requested.
Section 6110(k)(3) provides that it may not be used or cited as precedent.

        Under a power of attorney on file with this office, a copy of this letter will be sent
to X.

                                            Sincerely yours,
                                            PAUL F. KUGLER
                                            Assistant Chief Counsel
                                            (Passthroughs and Special Industries)

Enclosures: 2
      Copy of this letter
      Copy for § 6110 purposes