PLR 200520012: Foreign entity gets extension for disregarded entity election

Plain-English summary

A foreign entity with one owner intended to be treated as a disregarded entity for U.S. federal tax purposes, but it missed the deadline to file Form 8832. Its owner had limited liability, so the entity would need an election to obtain the intended classification. The IRS found that the requirements for a discretionary filing extension were met. It gave the entity 60 days from the letter date to file Form 8832 with the intended effective date and attach a copy of the ruling. The IRS did not address other tax consequences of its classification.

Ruling snapshot

• Question: Could the entity file a late election to be disregarded for federal tax purposes?
• Outcome: A 60 day extension to file Form 8832 was granted.
• 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: 200520012
Third Party Communication: None
Release Date: 5/20/2005
Date of Communication: Not Applicable
Index Number: 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:1
PLR-151591-04
Date:
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February 02, 2005

Legend

X = --------------------
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Country = ---------------------

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

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

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

This letter responds to your letter dated September 24, 2004, submitted on behalf of X requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election to be classified as a disregarded entity for federal tax purposes.

FACTS

According to the information submitted, X was formed on D1 under the laws of Country. X has a single owner that has limited liability as defined in section 301.7701- 3(b)(2)(ii). X intended to be a disregarded entity for federal tax purposes effective D2. However, X inadvertently failed to timely file Form 8832, Entity Classification Election.

LAW AND ANALYSIS

PLR-151591-04
2

Section 301.7701-3(a) provides that a business entity that is not classified as a corporation under section 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an "eligible entity") can elect its classification for federal tax purposes. A "business entity" is any entity recognized for federal tax purposes that is not properly classified as a trust under section 301.7701-4 or otherwise subject to special treatment under the Internal Revenue Code. Section 301.7701-2(a).
Section 301.7701-3(b)(2)(i) provides that unless a foreign eligible entity elects otherwise, the 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 owners if it has a single owner that does not have limited liability.
Section 301.7701-3(b)(2)(ii) provides that for purposes of section 301.7701- 3(b)(2)(i), a member of a foreign eligible entity has limited liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member.
Section 301.7701-3(c)(1)(i) provides that to elect to be classified other than as provided in section 301.7701-3(b), an eligible entity must file Form 8832, Entity Classification Election, with the designated service center. Section 301.7701-3(c)(2)(iii) provides that an election will be effective on the date specified on the Form 8832 or on the date filed if no such date is specified. The effective date specified on the Form 8832 cannot be more than 75 days prior to the date the election is filed.
Under 301.9100-1(c), the Commissioner may 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. 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 an announcement published in the Internal Revenue Bulletin.
Sections 301.9100-1 and 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 section 301.9100-2.
Section 301.9100-3(a) provides that requests for relief under section 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the Government.
Section 301.9100-3(b)(1)(iii) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer failed to make the election because, after exercising reasonable diligence (taking into account the taxpayer's experience and the complexity of the return or issue) the taxpayer was unaware of the necessity for the election.

PLR-151591-04
3

CONCLUSION
Based solely on the facts submitted and representations made, we conclude that the requirements of section 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 under section 301.7701-3(c) to be classified as a disregarded entity for federal tax purposes effective for D2. A copy of this letter should be attached to the Form 8832. A copy is included for that purpose.
Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

/s/ Heather C. Maloy

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

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

cc: