PLR 200506006: IRS extended time for a foreign company to elect partnership classification

Plain-English summary

Two owners of a foreign private company intended it to be treated as a partnership for U.S. federal tax purposes. The company inadvertently missed the deadline to file Form 8832. The IRS found that the requirements for discretionary extension relief under the Treasury regulations were met. It gave the company 60 days from the ruling's date to file Form 8832 electing partnership classification effective on the date it first issued stock. The ruling did not address other federal tax consequences.

Ruling snapshot

• Question: Could the foreign company file a late entity classification election effective when it first issued stock?
• Outcome: Approved for a 60-day extension.
• 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: 200506006
Third Party Communication: None
Release Date: 2/11/05
Date of Communication: Not Applicable
Index Number: 7701.31-00, 9100.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B03

• PLR-132722-04
  Date:
  November 04, 2004

LEGEND

X = ---------------------------------------------------------------------------------------------------
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A = ---------------------------------------------------------------------------------------------------
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B = ---------------------------------------------------------------------------------------------------
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Country = ---------

D1 = -------------------

D2 = --------------------------

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

This letter responds to your letter dated June 14, 2004, 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 be treated as a partnership for federal tax purposes.

FACTS

According to the information submitted, X was formally organized as a private company under the laws of Country on D1 and first issued stock on D2. X’s two owners, A and B, intended for X to elect to be treated as a partnership for federal tax

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purposes. However, due to inadvertence, X’s Form 8832, Entity Classification Election, was not filed timely.

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 eligible entity) can elect its classification for federal tax purposes. It further provides that, subject to certain limitations, a foreign eligible entity can elect to be classified as an association or a partnership.

Section 301.7701-3(b)(2) provides guidance on the default classification of a foreign eligible entity for federal tax purposes. Section 301.7701-3(b)(2)(B) provides that unless it elects otherwise, a foreign eligible entity is an association if all members have limited liability.

Section 301.7701-3(c)(1)(i) provides that an eligible entity may elect to be classified other than as provided in ' 301.7701-3(b) by filing Form 8832 with the service center designated on the Form.

Section 301.7701-3(c)(1)(iii) provides that an election under ' 301.7701-3(c)(1)(i) will be effective on the date specified 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 cannot be more than 75 days prior to the date the election is filed and cannot be more than 12 months after the date on which the election is filed.

Section 301.9100-1(c) provides that the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in '' 301.9100-2 and 301.9100-3, 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 a regulatory election to include an election whose due date is prescribed by a regulation published in the Federal Register.

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

Section 301.9100-3 sets forth 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) that granting relief will not prejudice the interests of the Government.

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CONCLUSIONS

Based on the facts submitted and 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 Form 8832 with the appropriate service center and elect to be classified as a partnership for federal tax purposes effective D2. A copy of this letter should be attached to the Form 8832.

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.

Under a power of attorney on file with this office, we are sending a copy of this letter to X.

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.

Sincerely,

/s/

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

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

cc: