PLR 200751005: Foreign subsidiary gets 60 days for disregarded entity election

Plain-English summary

A company incorporated under foreign law was wholly owned by another company. Its owner intended for the subsidiary to be treated as a disregarded entity for U.S. federal tax purposes from its incorporation date, but Form 8832 was inadvertently filed late. The IRS found that the requirements for an extension were satisfied. It gave the subsidiary 60 days from the letter date to file the election with the requested effective date and attach a copy of the ruling letter. The IRS did not decide any other tax consequences of the arrangement.

Ruling snapshot

• Question: May the foreign subsidiary file a late entity classification election effective from incorporation?
• 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: 200751005
Third Party Communication: None
Release Date: 12/21/2007
Date of Communication: Not Applicable
Index Numbers: 7701.00-00, 9100.00-00,
9100.31-00
Person To Contact:
-----------------------, ID No. ------------- --------------------------------------------- Telephone Number:
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Refer Reply To:
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CC:PSI:B03
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PLR-111737-07
Date:
September 10, 2007

LEGEND:

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

Date = ---------------------

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

This letter responds to a letter dated January 8, 2007, submitted on behalf of Y by Y’s 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.

FACTS

Y was incorporated under Country law on Date. Y is a wholly-owned subsidiary of X. Y represents that it is a foreign entity eligible to elect to be classified as a disregarded entity for federal tax purposes. X intended that Y be classified as a disregarded entity of X effective Date. However, due to inadvertence, Form 8832, Entity Classification Election, to treat Y as a disregarded entity effective Date was not timely filed.
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LAW AND ANALYSIS

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)(i) provides that, 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(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. This determination is based solely on the statute or law pursuant to which the entity is organized.

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), or to change its classification, by filing Form 8832 with the service center designated on Form 8832.

Section 301.7701-3(c)(1)(iii) provides that an election made 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 date is specified on the election form. The effective date specified on Form 8832 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 301.9100-1(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 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. Section 301.9100-3 provides 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 requests for relief subject to § 301.9100-3 will be granted when the taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the
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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, Y is granted an extension of time of sixty (60) days from the date of this letter to elect to be classified as a disregarded entity for federal tax purposes effective Date. 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 requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the ruling request, it is subject to verification on examination.

Sincerely,

/s/

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

Enclosures (2)

Copy of this letter
Copy for § 6110 purposes