PLR 200709040: Foreign entity gets time to elect disregarded status from formation

Plain-English summary

A foreign entity was classified by default as a corporation for U.S. federal tax purposes. It intended to elect treatment as an entity disregarded from its owner beginning on its formation date, but did not file Form 8832 on time. The IRS found that the requirements for discretionary filing relief under Treasury Regulation § 301.9100-3 were met. It granted 60 days from the ruling letter to file the election with the requested effective date. The ruling did not decide other tax consequences of the entity's activities.

Ruling snapshot

• Question: Could the foreign entity file a late election to be disregarded from its formation date?
• Outcome: Approved. The IRS granted a 60-day filing extension.
• 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: 200709040
Third Party Communication: None
Release Date: 3/2/2007
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
9100.31-00
Person To Contact:
--------------------, ID No. -------------
---------------------------------------------
Telephone Number:
----------------------------------------- ---------------------
---------------------
Refer Reply To:
------------------------------------------
CC:PSI:B02
-------------------------------------
PLR-139441-06
---------------------------------
Date:
November 17, 2006

Legend

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

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

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

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

This is in response to a letter dated August 14, 2006, submitted on behalf of X by its authorized representative, 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 income tax purposes.

FACTS

The information submitted states that X was formed in Country on D1 as an entity eligible to make a classification election. X’s default status was as an association taxable as a corporation for federal tax purposes. X intended to be classified as a disregarded entity for federal tax purposes effective D1. However, a Form 8832, Entity Classification Election, for X to elect to be treated as disregarded effective D1 was not timely filed.
PLR-139441-06
2

LAW AND ANALYSIS

Section 301.7701-2(a) generally provides that a business entity is any 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 Internal Revenue Code.

Section 301.7701-3(a) provides that so long as a business entity is not classified as a corporation under § 301.7701-2(b)(1), or (3)-(8) (an eligible entity), it may elect its classification for federal tax purposes.

Section 301.7701-3(a) further provides that an eligible entity with at least two members can elect to be classified as either an association (and thus a corporation under
§ 301.7701-2(b)(2)) or a partnership, and an eligible entity with a single owner can elect to be classified as an association or to be disregarded as an entity separate from its owner.

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 except as provided in
§ 301.7701-3(b)(3).

Section 301.7701-3(c)(1)(i) provides that an eligible entity may elect to be classified other than as provided under § 301.7701-3(b) by filing a Form 8832 with the appropriate service center. Under § 301.7701-3(c)(1)(iii), this election will be effective on the date specified by the entity on Form 8832 or on the date filed if no such date is specified on the election form. The date specified on Form 8832 cannot be more than 75 days prior to the date on which the election is filed and cannot be more than 12 months after the date on which the election is filed.

Section 301.9100-1(c) provides that 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.

Section 301.9100-3(a) provides that request for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted
PLR-139441-06
3

reasonably and in good faith, and that granting relief will not prejudice the interests of the Government. 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 sixty (60) days from the date of this letter to elect to be classified as a disregarded entity for federal income tax purposes, effective D1. 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.

In accordance with the power of attorney on file with this office, a copy of this letter will be sent to X’s authorized representative.

Sincerely,

William P. O’Shea
Associate Chief Counsel
(Passthroughs and Special Industries)

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