PLR 200606024: Foreign entity allowed late corporate classification election

Plain-English summary

A foreign entity wholly owned by a domestic corporation was meant to be taxed as a corporation when an affiliated group reorganized. It inadvertently missed the Form 8832 deadline for that classification election. The IRS found that the requirements for relief under Treasury Regulation section 301.9100-3 were met. It granted the entity 60 days to file Form 8832 electing corporate treatment effective on the redacted reorganization date, with a copy of the ruling attached.

Ruling snapshot

• Question: Could the foreign entity make its corporate classification election after the deadline?
• Outcome: Approved a 60 day filing extension.
• Key authorities: Treas. Reg. §§ 301.7701-3(c), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200606024
Release Date: 2/10/2006
Index Number: 9100.31-00

• Person To Contact:
  ------------------------------------ ---------------------- -------- -------------
  ------------------------------------ Telephone Number:
  --------------------------- ---------------------
  ------------------------------------------------ Refer Reply To:
  CC:PSI:2 – PLR-140762-05
  Date:
  October 21, 2005

Legend

X = ------------------------------------
---------------------------------------------------

Y = --------------------------------------
--------------------------------------------------

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

Date 1 = -----------------------

Date 2 = -------------------

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

This letter responds to your letter dated July 13, 2005, and subsequent correspondence, submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to elect to be treated as an association taxable as a corporation under § 301.7701-3(c) effective Date 2.

The information submitted states that X was formed under the laws of Country on Date 1. X is wholly owned by Y, a domestic corporation. X and Y are part of an affiliated group. A corporate reorganization occurred on Date 2. At the time of the corporate reorganization, X was intended to be treated as an association taxable as a corporation. However, due to inadvertence, X failed to file a timely Form 8832, Entity Classification Election, effective Date 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. Section 301.7701-2(a) provides that a “business entity” is any entity recognized for federal tax purposes that is

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not properly classified as a trust under section 301.7701-4 or otherwise subject to special treatment under the Internal Revenue Code.

Section 301.7701-3(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 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.

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 the election.

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

Section 301.9100-3 provides 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) granting relief will not prejudice the interests of the government.

Based solely on the information submitted and the 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 a Form 8832 with the appropriate service center and elect under § 301.7701-3(c) to be treated as an association taxable as a corporation effective Date 2. A copy of this letter should be attached to the Form 8832. A copy is enclosed for that purpose.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the

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Code.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Sincerely yours,

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

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