PLR 200648004: Foreign entity gets time for disregarded status election

Plain-English summary

A foreign entity missed the deadline to elect treatment as disregarded from its owner for federal tax purposes. It represented that the late filing was reasonable, that it acted in good faith, and that relief would not prejudice the government. The IRS found the discretionary extension standards satisfied and gave the entity 60 days from the letter's date to file Form 8832 for the requested effective date. The letter had to be attached to the election. The IRS did not address other tax consequences of the entity's classification.

Ruling snapshot

• Question: Could the foreign entity file a late Form 8832 electing disregarded status?
• Outcome: Approved; 60 days to file for the requested effective date.
• 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: 200648004
Third Party Communication: None
Release Date: 12/1/2006
Date of Communication: Not Applicable
Index Number: 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:B01
PLR-107041-06
Date: June 9, 2006
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Legend:

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

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

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

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

This letter is in response to your request, dated December 22, 2005, on behalf of X, seeking an extension under §301.9100 of the Procedure and Administration Regulations to file an election to treat X as disregarded as an entity separate from its owner for federal tax purposes.

Facts

Based on the material submitted and the representations contained within, we understand the relevant facts to be as follows. X was formed in accordance with the laws of Country. However, X failed to file a timely election to be treated as disregarded as an entity separate from its owner for federal tax purposes, effective Date 2.

X represents that the granting of relief will not prejudice the interest of the government. X also represents that its failure to file a Form 8832, Entity Classification Election, was reasonable and that it has acted in good faith.
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Law and Analysis

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 an entity recognized for federal tax purposes that is not properly classified as a trust under § 301.7701-4 or otherwise subject to special treatment under the Code. Section 301.7701-2(a). An eligible entity with a single owner can elect either to be classified as an association (and thus a corporation under § 301.7701- 2(b)(2)) or to be disregarded as an entity separate from its owner.

Section 301.7701-3(b)(2) provides guidance on the classification of a foreign eligible entity for federal tax purposes. Generally, a foreign eligible entity is treated as an association taxable as a corporation if all members have limited liability, unless the entity makes an election to be treated otherwise. If a foreign eligible entity has 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) provides that an entity classification election must be filed on Form 8832 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.

To elect to be classified other than as provided in § 301.7701-3(b), an eligible entity must file Form 8832, Entity Classification Election, with the designated service center. Section 301.7701-3(c)(1)(i). An election can 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. Section 301.7701-3(c)(2)(iii).

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 301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions for time for making elections that do not meet the requirements of section 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, X is granted an extension of time of sixty (60) days from the date of this letter to elect to be treated as
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an entity disregarded from its owner for federal tax purposes, effective Date 2. 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.

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.

Pursuant to the power of attorney on file with this office, a copy of this letter will be sent to the taxpayer’s representative.

Sincerely,

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

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