PLR 200323003: Foreign subsidiary gets time to elect disregarded status

Plain-English summary

A parent company owned a foreign subsidiary that gave it limited liability. The parent intended the subsidiary to be disregarded as a separate entity for U.S. federal tax purposes from the subsidiary's formation date, but Form 8832 was not filed. Because the entity's default classification would not provide that treatment, it requested more time to elect. The IRS found the regulatory relief requirements satisfied and granted 60 days from the letter to file Form 8832 with the original formation date as its effective date. The ruling addressed the late election and gave no opinion on other tax consequences.

Ruling snapshot

• Question: Could the foreign subsidiary file a late election for disregarded entity status effective from formation?
• Outcome: Approved a 60-day extension 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: 200323003
Washington, DC 20224
Release Date: 6/6/2003
Index Number: 7701.00-00; 9100.00-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-160872-02
Date:
February 10, 2003

Legend

Parent
=

Subsidiary
=

Foreign Country =

Date 1
=

Dear
:

This letter responds to a letter dated November 5, 2002, and subsequent correspondence, requesting a ruling under § 301.9100-3(a) of the Procedure and Administration Regulations to file an election for Subsidiary to be treated as a disregarded entity for federal tax purposes.

Facts

According to the information submitted, Subsidiary is wholly-owned by Parent.
Subsidiary was formed in Foreign Country on Date 1 and provides Parent with limited liability pursuant to the laws of Foreign Country. Parent intended Subsidiary to be treated as a disregarded entity for federal tax purposes effective Date 1 but inadvertently failed to file a Form 8832, Entity Classification Election.

PLR-160872-02

Law and Application

Section 301.7701-2(a) generally provides that a business entity is any entity recognized for federal tax purposes that is not properly classified as a trust under § 301.7701-4 or otherwise subject to special treatment under the Internal Revenue Code. Section 301.7701-3(a) further provides that a business entity with only one owner is classified as a corporation or is disregarded. If it is disregarded, then the entity’s activities are treated in the same manner as a sole proprietorship, branch, or division of the owner.

Section 301.7701-3(a) provides that so long as a business entity is not classified as a corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8), it may elect its classification for federal tax purposes. Section 301.7701-3(b)(2)(i) provides that, unless the entity elects otherwise, a foreign eligible entity is (A) a partnership if it has two or more members and at least one member does not have limited liability, (B) an association if all members have limited liability, or (C) disregarded as an entity separate from its owner if it has a single owner that does not have limited liability.

Section 301.7701-3(c)(1)(i) provides that an eligible entity may elect to be classified other than as provided under § 301.7701-3(b) by filing a Form 8832 with the appropriate service center. Under § 301.7701-3(c)(1)(iii), this election 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 date specified on Form 8832 cannot 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 has discretion to 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.

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 301.9100-2 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.

Section 301.9100-3(a) provides that requests for relief will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the government.

PLR-160872-02

Conclusion

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, Subsidiary is granted an extension of time of 60 days from the date of this letter to file Form 8832 with the appropriate service center with an effective date of Date 1. A copy of this letter should be attached to the election and is enclosed for this purpose.

Except for the specific ruling above, no opinion is expressed or implied concerning the federal income tax consequences of the facts of this case under any other provision of the Internal Revenue Code.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Internal Revenue 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 the requested tax representative.

Sincerely,

/s/
Heather C. Maloy
Associate Chief Counsel
(Passthroughs and Special Industries)

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

PLR-160872-02