PLR 200509009: Foreign entity receives more time to elect partnership classification

Plain-English summary

A foreign entity with two owners intended to elect partnership treatment for U.S. federal tax purposes when it began accepting investments. Its Form 8832 was inadvertently filed late. The IRS found that the entity met the requirements for discretionary filing relief under the section 301.9100 regulations. It gave the entity 60 days from the date of the ruling to file Form 8832 and elect partnership classification effective on its intended date. The IRS expressed no opinion on other tax consequences of the transaction.

Ruling snapshot

• Question: Could the foreign entity file a late election for partnership classification effective from its intended start date?
• Outcome: Approved: a 60 day extension was granted.
• 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: 200509009
Third Party Communication: None
Release Date: 3/4/05
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:3
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PLR-135879-04
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Date:
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November 16, 2004

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LEGEND

X = ---------------------------------------------------------------------------------------------------
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A = ---------------------------------------------------------------------------------------------------
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B = ---------------------------------------------------------------------------------------------------
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D1 = --------------------------

Country = ----------------------

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

This letter responds to a letter dated June 22, 2004, and subsequent correspondence by X’s authorized representative on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X to file an election to be classified as a partnership for federal tax purposes, effective D1.

FACTS

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According to the information submitted, X was formed as a Country entity and first began accepting investments on D1. X’s owners are A and B. X intended to elect to be treated as a partnership for federal tax purposes. However, due to inadvertence, X’s Form 8832, Entity Classification Election, was not filed timely.

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 an eligible entity with more than one owner can elect to be classified as an association or as 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, Entity Classification Election, with the service center designated on Form 8832.

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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CONCLUSION

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 D1. 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