PLR 200505018: Foreign company given time to elect disregarded status

Plain-English summary

A foreign limited company became wholly owned by another company. The sale agreement called for an entity classification election effective on the acquisition date, but Form 8832 was not filed on time. The IRS found that the company met the requirements for discretionary extension relief under the Treasury regulations. It gave the company 60 days from the ruling date to file Form 8832 electing to be disregarded as separate from its owner, effective on the acquisition date. The ruling expressed no opinion on other federal tax consequences.

Ruling snapshot

• Question: Could the foreign company file a late disregarded entity election effective on acquisition?
• 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
Washington, DC 20224
Number: 200505018
Third Party Communication: None
Release Date: 2/4/05
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:B02
PLR-141814-04
Date:
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October 8, 2004

Legend

X: -------------------------------------------
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Y: ------------------------
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Z: --------------------------------------------
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Country: ---------------------

State: ----------------------

d1: ---------------------------

Dear ----- ---------------:

This responds to your letter dated July 6, 2004, and subsequent correspondence submitted on behalf of X, requesting that the Service grant X an extension of time to elect to be treated as a disregarded entity under § 301.7701-3(c) of the Procedure and Administration Regulations.

The information submitted states that X is a limited company formed under the laws of Country. X is wholly owned by Y, also a limited company formed under the laws of Country. Y is indirectly owned by a group of companies that file a consolidated return for federal income tax purposes, the ultimate parent of which is Z, a domestic
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corporation formed in State. Y acquired all of X’s stock on d1. As part of the agreement for the sale and purchase, the seller of the X stock agreed to deliver a completed Form 8832, Entity Classification Election effective d1.

X represents that pursuant to § 301.7701-3(a), X is a foreign eligible entity that is not required to be classified as a corporation for federal tax purposes. Due to inadvertence, X failed to file a timely election, Form 8832, effective d1.

Section 301.7701-3(b)(2) provides guidance on the classification of a foreign entity for federal income 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 the foreign eligible entity has only one owner, it may elect to be treated as a disregarded entity 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 seventy-five (75) days prior to the date the form is filed or up to twelve (12) months after the date on which the form is filed.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue 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 the election.

Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections.

Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) granting relief will not prejudice the interests of the government.

Based solely on the information submitted and the representations made, we conclude that the requirements of § 301.9100-1 and § 301.9100-3 have been satisfied. As a result, X is granted an extension of time of 60 days from the date of this letter to file a Form 8832 with the appropriate service center and elect to treat X as a
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disregarded entity effective d1. A copy of this letter should be attached to the Form 8832. A copy is enclosed for that purpose.

Except as specifically set forth above, no opinion is expressed 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) provides that it may not be used or cited as precedent.

Sincerely,

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

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