PLR 200750004: Foreign entity gets late election to retain partnership tax treatment

Plain-English summary

A foreign entity changed its legal form. Its old form was classified by default as a partnership for U.S. federal tax purposes, while its new form was classified by default as a corporation. The entity intended to continue its partnership tax treatment but inadvertently missed the deadline to file Form 8832. The IRS found that the regulatory extension requirements were met and gave it 60 days from the letter date to elect partnership treatment effective on the conversion date. The ruling does not decide other tax consequences of the conversion.

Ruling snapshot

• Question: May the entity elect partnership classification late, effective on its legal conversion date?
• Outcome: Approved; Form 8832 due within 60 days of the letter.
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200750004
Third Party Communication: None
Release Date: 12/14/2007
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B1
PLR-112633-07
Date: September 5, 2007

Legend

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

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

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

A = -------------------------

B = -------------------------------------------------

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

This is in response to a letter dated March 12, 2007, and subsequent correspondence, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to file an election to treat X as a partnership for federal tax purposes under § 301.7701-3(c).

Facts

According to the information submitted, on Date 1, X was formed under the laws of Country as an A, the default classification of which is a partnership for federal tax purposes. On Date 2, X converted to a B in accordance with the laws of Country, the default classification of which is a corporation for federal tax purposes. X intended to continue to be taxed as a partnership. However, X inadvertently failed to file a timely
PLR-112633-07
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election to continue to be treated as a partnership for federal tax purposes, effective as of 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.

Law and Analysis

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

Under § 301.9100-1(c), 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 Federal Register.

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.

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
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Based solely upon the information submitted, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a result, an extension of 60 days from the date of this letter is granted to elect to treat X as a partnership for federal tax purposes, effective Date 2. The entity classification election should be made by filing Form 8832 with the appropriate service center. A copy of this letter should be attached to the Form 8832. A copy is enclosed for that purpose.

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 your authorized representative.

Sincerely,

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

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