PLR 200817003: Foreign company received more time to elect disregarded status

Plain-English summary

A foreign company limited by shares had one owner with limited liability when formed and intended to be disregarded as a separate entity for U.S. tax purposes, but missed the deadline to file Form 8832. The IRS granted 60 days from the ruling date to file the entity classification election effective from formation. The company later gained additional owners. If the election was made, the IRS said the company would become a partnership for U.S. tax purposes from the date it became a multi-owner entity.

Ruling snapshot

• Question: Could the company make a late election to be disregarded from its formation date?
• Outcome: Approved: a 60-day filing extension, with subsequent partnership classification.
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200817003
Third Party Communication: None
Release Date: 4/25/2008
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B03
PLR-112750-07
Date:
January 23, 2008

LEGEND

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

A = ---------------------------------------------------------
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Country = --------------------------------

d1 = ----------------------

d2 = -------------------------

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

We received a letter dated February 7, 2007, submitted on behalf of X, by its authorized representative, requesting a ruling under § 301.9100-3 of the Procedure and Administration Regulations that X be granted an extension of time to file an election to be classified as a disregarded entity under § 301.7701-3 effective d1. This letter responds to that request.

FACTS

On d1, A formed X as a company limited by shares under the laws of Country.
A, as the sole owner of X, had limited liability. It was intended that X be treated as a disregarded entity for federal tax purposes effective d1. However, due to inadvertence,

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X failed to file a timely Form 8832, Entity Classification Election. On d2, X had more than one owner, all of whom had limited liability.

LAW

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, 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 that, except as provided in § 301.7701-3(c)(1)(iv) and (v), 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, Entity Classification Election, 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(f)(2) provides that a single member entity disregarded as an entity separate from its owner is classified as a partnership when the entity has more than one member.

Section 301.9100-1(c) provides that the Commissioner in exercising the Commissioner’s discretion 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 6 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 301.9100-2 provides the rules governing automatic extensions of time for making certain elections. Section 301.9100-3 sets forth 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

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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 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, 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 and to elect to be classified as a disregarded entity for federal tax purposes effective d1. If the election is made, then effective d2, X will be classified as a partnership for federal tax purposes. A copy of this letter should be attached to the Form 8832. A copy is enclosed for that purpose.

Except as expressly set forth above, we express or imply no opinion concerning the federal tax consequences of the facts discussed above under any other provision of the Code.

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

In accordance with a power of attorney on file with this office, we are sending a copy of this letter to X’s authorized representatives.

Sincerely,

/s/

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

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