PLR 200712023: Foreign entity granted late partnership election

Plain-English summary

A foreign entity was formed under laws that gave all its members limited liability. Its members intended federal partnership treatment but did not file Form 8832 because they did not know an election was needed. Under the default classification rule described in the letter, a foreign eligible entity whose members all have limited liability is treated as an association unless it elects otherwise. The IRS granted the entity 60 days from the ruling date to file a partnership election effective from its formation date. The IRS expressly did not decide whether the entity otherwise qualifies as a partnership for federal tax purposes.

Ruling snapshot

• Question: May the foreign entity elect partnership classification after the Form 8832 deadline?
• Outcome: Approved a 60-day extension; underlying eligibility was not decided.
• 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: 200712023
Third Party Communication: None
Release Date: 3/23/2007
Date of Communication: Not Applicable
Index Number: 7701.02-00, 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:B03
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PLR-136495-06
Date: November 30, 2006

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Legend

X = -----------------------------------------
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Y = -----------------------------------------
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Date1 = -------------------------

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

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

This letter responds to a letter dated July 31, 2006, submitted on behalf of X by X’s authorized representative, requesting a ruling under § 301.9100-3(a) of the Procedure and Administration Regulations that X be granted an extension of time to make an election to be classified as a partnership effective Date1.

Facts

The information submitted states that X was formed on Date1 under Country law.
Pursuant to Country law, X provides limited liability to all its members. The members of

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X intended for X to be treated as a partnership for federal tax purposes. However, because the members of X were unaware that an election was necessary for X to be treated as a partnership for federal tax purposes, X did not file a Form 8832, Entity Classification Election.

Law and Analysis

Section 301.7701-1(b) provides that the classification of organizations that are recognized as separate entities is determined under §§ 301.7701-2, 301.7701-3 and 310.7701-4. Section 301.7701-3(a) provides that a business entity that is not classified as a corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can elect its classification for federal tax purposes as provided in § 301.7701-3.

Section 301.7701-3(b)(2) provides that, except as provided in § 301.7701-3(b)(3), unless the entity elects otherwise, a foreign eligible entity is a partnership if it has two or more members and at least one member does not have limited liability, an association if all members have limited liability, or disregarded as an entity separate from its owner if it has a single owner that does not have limited liability.

Section 301.7701-3(b)(2)(ii) provides that 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 an eligible entity may elect to be classified other than as provided in §301.7701-3(b) by filing a Form 8832 with the service center designated on Form 8832.

Section 301.7701-3(c)(iii) provides that an election made under § 301.7701-3 shall be effective on the date specified or, if no date is specified, on the date filed. Section 301.7701-3(c)(iii) further provides that the effective 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 has discretion to grant a reasonable extension of time under rules set forth in §§ 301.9100-2 and 301.9100-3, 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 a regulatory election to include an election whose due date is prescribed by a regulation published in the Federal Register.

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

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Section 310.9100-3 sets forth 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.

Section 301.9100-3(a) provides that the requests for relief subject to § 301.9100-3 will be granted when the taxpayer provides evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.

Conclusion

Based on the facts submitted and the representations made, we conclude that the requirements of § 301.9100-1 and § 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 to elect to be a partnership for federal tax purposes effective Date1. A copy of this letter should be attached to the election. A copy is included for that purpose.

Except as specifically set forth herein, we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the Code. Specifically, we express or imply no opinion concerning whether X is otherwise eligible to be a partnership for federal tax purposes.

This ruling is directed only to the taxpayer 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 is being sent to X’s authorized representative.

Sincerely,

/s/

William P. O’Shea
Associate Chief Counsel
Passthroughs & Special Industries

Enclosures (2)

Copy of this letter
Copy for § 6110 purposes