PLR 200131016: Late entity classification election allowed for foreign subsidiary

Plain-English summary

A U.S. corporation owned a foreign private limited company and intended to treat it as disregarded for federal tax purposes from the date it began operations. The foreign company missed its Form 8832 election through inadvertence. The IRS concluded that the requirements for discretionary extension relief were met and gave the owner 60 days from the letter date to file the election, attaching the ruling. The election could use the requested earlier effective date. The IRS expressed no view on other tax consequences.

Ruling snapshot

• Question: Could the owner file a late election to treat its wholly owned foreign company as a disregarded entity?
• Outcome: Approved a 60 day extension to file Form 8832 with the requested effective date.
• Key authorities: Treas. Reg. §§ 301.7701-3(c), 301.9100-1, and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200131016
Washington, DC 20224
Release Date: 8/3/2001
Index Numbers: 7701.00-00, 9100.31-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-124809-00
Date:
May 2, 2001

LEGEND

X
=

Y
=

State =

Country =

d1
=

d2
=

Dear

This letter responds to your letter dated October 2, 2000, and subsequent correspondence submitted on behalf of X, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations for X to elect to treat Y as a disregarded entity for federal tax purposes under § 301.7701-3(c) effective d2.

FACTS

According to the information submitted, Y is a private limited company formed under the laws of Country on d1. X, a domestic corporation incorporated under the laws of State, is the sole owner of Y. It is represented that X has no personal liabilities for the debts of or claims against Y. X and Y had intended for Y to elect to be disregarded as an entity separate from its owner under § 301.7701-3(c) effective d2, the date Y began operations. However, due to inadvertence, Y did not make the election.

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

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eligible entity) can elect its classification for federal tax purposes. 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)(2)(i)(B) provides that, unless the entity elects otherwise, a foreign eligible entity is an association if all members have limited liability.

Section 301.7701-3(c)(1)(i) provides, in part, that an eligible entity may elect to be classified other than as provided under § 301.7701-3(b) by filing Form 8832, Entity Classification Election, with the applicable service center.

Section 301.7701-3(c)(1)(iii) provides, in part, 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 such date is specified on the election form. The effective date specified on Form 8832 can not be more than 75 days prior to the date on which the election is filed and can not be more than 12 months after the date on which the election is filed.

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 an announcement published in the Internal Revenue Bulletin.

Sections 301.9100-1 and 301-9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an 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. Section 301.9100-3(a).

CONCLUSIONS

Based solely on the facts and representations submitted, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly, X is granted an extension of time to file Form 8832 with the appropriate service center to treat Y as a disregarded entity, effective d2, until 60 days following the date of this letter. The election should be made by following the procedures set forth in Form 8832, and a copy of this letter should be attached to the election. A copy is enclosed for that

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purpose.

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.

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.

Sincerely yours,
Paul F. Kugler
Associate Chief Counsel
(Passthroughs and Special Industries)

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