PLR 200539017: Late disregarded entity election for a foreign subsidiary

Plain-English summary

A domestic entity's subsidiary formed a foreign entity and intended to elect for it to be disregarded for federal tax purposes. The Form 8832 election was not filed on time because of inadvertence. The IRS found that the requirements for late-election relief were satisfied. It granted 60 days to file Form 8832 for disregarded entity treatment effective on the requested date.

Ruling snapshot

• Question: Could the foreign entity make a late election to be disregarded as separate from its owner?
• Outcome: Approved; a 60-day filing extension 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: 200539017
Third Party Communication: None
Release Date: 9/30/2005
Date of Communication: Not Applicable
Index Number: 9100.00-00, 7701.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B01
PLR-124130-05
Date:
June 20, 2005

Legend

X = ----------------------------------
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Sub1 = -----------------------
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Sub2 = ---------------------------------------------
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State = -------------

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

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

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

Dear ------------

This is in response to a letter dated April 28, 2005 requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election to treat Sub2 as an entity disregarded as separate from its owner for federal tax purposes under § 301.7701-3(c).

FACTS

Based upon the information submitted and representations made within your request, X, a State entity, was the sole owner of Sub1, also a State entity. On D1, Sub1 formed Sub2 under the laws of Country. It was intended that a Form 8832, Entity Classification
PLR-124130-05
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Election, would be filed to treat Sub2 as an entity disregarded as separate from its owner effective D2. Due to inadvertence, however, this election was not timely filed.

LAW AND ANALYSIS

Section 301.7701-3(b)(2) provides guidance on the classification of a foreign eligible entity for federal tax purposes. Generally, unless the entity makes an election to be treated otherwise, a foreign eligible entity is treated as an association taxable as a corporation if all members have limited liability. If a 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). If a foreign eligible entity has more than one owner, it may elect to be treated as a partnership pursuant to the rules in § 301.7701-3(c). Section 301.7701-3(c) further provides that an entity classification election must be filed on Form 8832, Entity Classification Election, and can be effective up to 75 days prior to the date the form is filed or up to 12 months after the date on which the form 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 including an election with a deadline prescribed by a regulation 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 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 § 301.9100-2.

Requests for relief under § 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(a).

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Accordingly, an extension of sixty (60) days from the date of this letter is granted to elect to treat Sub2 as disregarded as an entity separate from its owner for federal tax purposes, effective D2. The election should be made by filing Form 8832 with the appropriate service center. A copy of this letter should be attached to the election.
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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(s) requesting it. Section 6110(k)(3) of the Internal Revenue 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 will be sent to your authorized representative.

Sincerely,

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

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