PLR 200804003: Foreign subsidiary gets time for disregarded entity election

Plain-English summary

A foreign company owned a foreign subsidiary that said it was eligible to elect disregarded entity treatment. The subsidiary inadvertently missed the deadline to file Form 8832 with its intended effective date. The IRS found the requirements for late election relief satisfied and gave the subsidiary 60 days from the letter date to file the form, effective on the redacted formation date. The IRS did not decide other federal tax consequences of the election.

Ruling snapshot

• Question: Could the foreign subsidiary file a late disregarded entity election effective from its formation date?
• Outcome: Approved; Form 8832 could be filed within 60 days with the intended effective date.
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200804003
Third Party Communication: None
Release Date: 1/25/2008
Date of Communication: Not Applicable
Index Number: 9100.31-00, 7701.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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PLR-107792-06
Date:
October 24, 2007

Legend:

X = ---------------------------------------------------------------------------------------------------
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Y = ---------------------------------------------------------------------------------------------------
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Date = -----------------

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

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

This letter responds to your letter dated January 30, 2006, and subsequent correspondence, submitted on behalf of X by X’s authorized representative, requesting a ruling under § 301.9100-3(a) of the Procedure and Administration Regulations. X requests an extension of time to make a foreign disregarded entity election under § 301.7701-3(a).

Facts

X was formed on Date under Country law. X is a wholly owned subsidiary of Y, a Country company. X represents that it is eligible to elect foreign disregarded entity status. However, X inadvertently failed to file timely a Form 8832, Entity Classification Election, to elect foreign disregarded entity status effective Date.
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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 301.7701-3(g)(1)(iii) provides that if an eligible entity classified as an association elects under § 301.7701-3(c)(1)(i) to be disregarded as an entity separate from its owner, the following is deemed to occur: The association distributes all its assets and liabilities to its single owner in liquidation of the association.

Section 301.9100-1(c) provides that the Commissioner has discretion to 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
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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 taxpayer acted reasonably and in good faith, and that 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 are satisfied. As a result, 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 electing to be a foreign disregarded entity for federal tax purposes effective Date. A copy of this letter should be attached to the election.

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.

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.
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The rulings contained in this letter are 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 request for rulings, it is subject to verification on examination.

Sincerely,

/s/

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

Enclosures (2)

Copy of this letter
Copy for § 6110 purposes