PLR 200724016: Foreign holding entity gets time to elect disregarded status

Plain-English summary

A foreign holding entity had previously elected corporate classification for U.S. tax purposes. Following a restructuring, it intended to elect treatment as disregarded from its owner, but inadvertently failed to file Form 8832 on time. The IRS granted 60 days from the letter to file the classification election with the intended effective date. The ruling addresses the late filing only and does not decide other federal tax consequences of the restructuring.

Ruling snapshot

• Question: May the foreign entity file a late election to be disregarded from its owner?
• Outcome: Approved; Form 8832 must be filed within 60 days of the letter.
• 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: 200724016
Third Party Communication: None
Release Date: 6/15/2007
Date of Communication: Not Applicable
Index Number: 7701.01-00, 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
PLR-147759-06
Date: March 6, 2007
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LEGEND

X = --------------------
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Y = -------------------------------------
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A = ----------------------------
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Country = ----------------------

Date1 = ------------------

Date2 = ----------------------

Date3 = -------

Date4 = ----------------------

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

This letter responds to a letter dated October 6, 2006, and subsequent correspondence, submitted by your authorized representative on behalf of X and Y, requesting an extension of time under § 301.9100-3 of the Procedure and

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Administration Regulations to file an election to treat X as a disregarded entity for federal tax purposes under § 301.7701-3(c).

FACTS

X, a holding company, was formed on Date1 as a partnership under the laws of Country. A, a U.S. corporation, owned 100% of X through three entities disregarded for U.S. federal income tax purposes. X is not classified as a corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8). At the time X was formed, an initial entity classification election to treat X as a corporation for U.S. tax purposes was made.

On Date2, Y, a U.S. corporation, acquired 100% of the stock of A.

During the year Date3, Y completed a tax restructuring to simplify its business structure. As part of the restructuring, Y intended for X to elect to be treated as disregarded as an entity separate from its owner under § 301.7701-3(c), effective Date4.

X represents that it is a foreign entity eligible to be classified as a disregarded entity. Due to inadvertence, a Form 8832, Entity Classification Election, to treat X as disregarded as an entity separate from its owner, effective Date4, was not filed timely.

LAW AND ANALYSIS

Section 301.7701-3(a) provides, in part, 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. 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) provides, in part, that except as provided in § 301.7701-3(b)(3), unless the entity elects otherwise, a foreign eligible 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 owner if it has a single owner that does not have limited liability.

Section 301.7701-3(c)(1)(i) provides, in part, that an eligible entity may elect to be classified other than as provided under § 301.7701-3(b), or to change its classification, by filing Form 8832, Entity Classification Election, with the service center designated on Form 8832.

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Section 301.7701-3(c)(1)(iii) provides that an election under § 301.7701-3(c)(1)(i) 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 effective date specified can not be more than 75 days prior to the date on which the election is filed and can not be more than 12 months after the date on which the election is filed.

Section 301.7701-3(c)(iv) provides that if an eligible entity makes an election under § 301.7701-3(c)(1)(i) to change its classification, the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election. Section 301.7701-3(c)(iv) further provides that an election by a newly formed eligible entity that is effective on the date of formation is not considered a change for purposes of § 301.7701-3(c)(1)(iv).

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory election (but not more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code, except subtitles E, G, H, and I.

Section 301.9100-2 provides the standards the Commissioner will use to determine whether to grant an automatic extension of time for making certain elections.

Section 301.9100-3 provides the guidelines for granting extensions of time for making elections that do not meet the requirements of § 301.9100-2. Section 301.9100- 3(a) provides that 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 solely on the facts submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly, X is granted an extension of time of 60 days from the date of this letter to file Form 8832 with the appropriate service center to elect to be treated as a disregarded entity effective Date4. 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, we express or imply no opinion concerning the federal tax consequences of the facts described under any other provision of the Code.

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

In accordance with the power of attorney on file with this office, copies of this letter are being sent to your authorized representatives.

Sincerely,

/s/

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

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