PLR 200515005: Foreign entity gets 60 days to file a classification election

Plain-English summary

The owners of a foreign entity transferred all its shares to another foreign corporation and intended for the first entity to become disregarded for federal tax purposes the next day. The transfer agreement called for the classification election, but Form 8832 was not filed on time because of inadvertence. The IRS concluded that the entity met the standards for late election relief under Treas. Reg. § 301.9100-3. It gave the entity 60 days from the letter date to file Form 8832 with the intended effective date. The letter expresses no view on other federal tax consequences of the share transfer.

Ruling snapshot

• Question: Could the entity file a late election to be disregarded from its owner?
• Outcome: Approved, with a 60-day deadline for Form 8832.
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200515005
Third Party Communication: None
Release Date: 4/15/2005
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:
CC:PSI:B03
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PLR-140384-04
Date:
December 14, 2004

LEGEND

X = -------------------------------------------------------------------------------------------------
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Y = -------------------------------------------------------------------------------------------------
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Country1 = --------------------------------

Country2 = ----------------------

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

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

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

This letter responds to your letter, dated July 19, 2004, and subsequent correspondence 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 disregarded entity for federal tax purposes.

FACTS

According to the information submitted, X was formed as a Country1 entity.
Effective D1, X’s shareholders transferred all of their shares of X to Y, a Country2 corporation, in exchange for 100% of Y’s stock. The transfer agreement stated that X was to elect to be treated as a disregarded entity effective D2, the day after the transfer

PLR-140384-04
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was effective. However, due to inadvertence, the 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.

Section 301.7701-3(b)(2) provides guidance on the classification of foreign eligible entities. Section 301.7701-3(b)(2)(i)(B) provides that unless the entity 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 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 form. The effective date specified on Form 8832 cannot be more than 75 days prior to the date the form is filed and cannot be more than 12 months after the date on which the form 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 ' 301.9100-3 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 to elect to be classified as an entity disregarded from its owner for federal tax purposes effective D2. A copy of this letter should be attached to the Form 8832. A copy is attached for that purpose.

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.

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.

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

Sincerely,

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

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