PLR 200204025: Foreign company gets time to elect disregarded entity status

Plain-English summary

A foreign limited company owned by a domestic S corporation intended to elect treatment as an entity disregarded from its owner but missed the filing deadline. A foreign eligible entity whose members have limited liability generally defaults to corporate classification unless it elects otherwise. The IRS found the requirements for discretionary election relief met and granted the company 60 days from the letter date to file Form 8832 effective from its creation date. The company had to attach a copy of the ruling to the election. The IRS did not address other federal tax consequences.

Ruling snapshot

• Question: May the company file a late election to be disregarded from its owner as of its creation date?
• Outcome: Approved, with 60 days to file Form 8832.
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200204025
Washington, DC 20224
Release Date: 1/25/2002
Index Number: 9100.31-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-115085-01
Date:
October 23, 2001

LEGEND

X
=

Y
=

d1
=

Country =

Dear

This letter responds to a letter dated February 15, 2001, and subsequent correspondence by your authorized representative on behalf of X, requesting an extension of time for X to elect to be treated as a disregarded entity under § 301.7701-3 of the Procedure and Administration regulations.

FACTS

According to the information submitted, X was created on d1 as a Country limited company, and is owned by Y, a domestic subchapter S corporation. X had intended to elect under § 301.7701-3(a) to be treated as a disregarded entity for federal tax purposes. However, due to inadvertence, X failed to file the election timely.

LAW AND ANALYSIS

Section 301.7701-3(b)(2) provides guidance on the classification of a foreign eligible entity for federal tax purposes. Generally, a foreign eligible entity is treated as an association taxable as a corporation if all members have limited liability, unless the entity makes an election to be treated otherwise. If a foreign eligible entity has one owner, it may elect to be taxable as an entity that is disregarded as an entity separate from its owner pursuant to the rules in § 301.7701-3(c). Section 301.7701-3(c) provides that an entity classification election must be filed on Form 8832 and can be effective up to 75 days prior to the date the form is filed or up to 12 months after the date on which the form is filed.

Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of

PLR-115085-01
2

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, if the taxpayer demonstrates to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting the relief will not prejudice the interests of the government. Section 301.9100-1(b) defines the term "regulatory election" as including an election whose deadline is prescribed by a regulation published in the Federal Register.

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 an election. Section 301.9100-1(a). Section 301.9100-2 provides automatic extension(s) of time for making certain elections but does not apply to elections under § 301.9100-3. 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 reasonable 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 submitted and the representations made, the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a result, X is granted an extension of time of sixty (60) days from the date of this letter to make an election to be treated as an entity that is disregarded from its owner effective d1.

X should make the election by filing a properly executed Form 8832 and attaching a copy of this letter to the election. A copy is enclosed for that purpose.

Except as specifically set forth above, no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the Code.

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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely yours,
Paul F. Kugler
Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2):
Copy of this letter
Copy for § 6110 purposes