PLR 200731015: Foreign entity gets late disregarded classification election

Plain-English summary

A foreign eligible entity was acquired by another entity and intended to be disregarded for U.S. federal tax purposes from the acquisition date. Its default classification was a corporation, and it missed the deadline to file Form 8832. The IRS found that the standards for late election relief were met and gave the entity 60 days to file the form with the intended effective date. It did not address other tax consequences.

Ruling snapshot

• Question: May the acquired foreign entity file a late disregarded entity election?
• Outcome: A 60 day extension was granted to file Form 8832.
• 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: 200731015
Third Party Communication: None
Release Date: 8/3/2007
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
9100.31-00
Person To Contact:
--------------------, ID No. -------------
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Telephone Number:
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---------------------------------------------- Refer Reply To:
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CC:PSI:B02
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PLR-149279-06
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Date:
April 27, 2007

Legend

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

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

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

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

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

This is in response to a letter dated September 25, 2006, and subsequent correspondence, 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 tax purposes.

FACTS

The information submitted states that X was formed under the laws of Country as an entity eligible to make a classification election and was acquired by Y on D1. 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.
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However, a Form 8832, Entity Classification Election, for X to elect to be treated as a disregarded entity effective D1 was not timely filed. 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 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(a) further 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(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
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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 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 representatives.

Sincerely,

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

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