PLR 200844006: Foreign subsidiary received extra time for disregarded status election

Plain-English summary

A taxpayer acquired a foreign company through tiered disregarded entities, and the acquired company owned several foreign limited-company subsidiaries. The taxpayer intended those subsidiaries to elect disregarded-entity status from the acquisition date, but the Forms 8832 were not filed on time. The ruling request concerned one of those subsidiaries. Based on the submitted facts and representations, the IRS found that the late-election relief standards were satisfied. It granted that subsidiary 60 days from the ruling date to file Form 8832 with the intended effective date and attach the ruling. The extension did not determine whether the subsidiary was otherwise eligible to make the election.

Ruling snapshot

• Question: Could the foreign subsidiary make a late election for disregarded-entity status effective from the acquisition date?
• Outcome: Approved, with 60 days to file Form 8832 and attach the ruling.
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-2, 301.9100-3

Full text (IRS public release)

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Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 200844006
Release Date: 10/31/2008
Index Numbers: 7701.00-00, 9100.31-00

-------------------------------- Person To Contact:
-------------------------------- ---------------------, ID No. ------------
------------ Telephone Number:

------ Refer Reply To:
CC:PSI:B03
PLR-114002-08
Date: July 14, 2008

LEGEND

Taxpayer = -----------------------

DE1 = -----------------------------------

DE2 = --------------------------------------

DE3 = ---------------------------------------------

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

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

C = --------------------------------------------------------

D = ---------------------------------

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

a = --------------------------
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PLR-114002-08

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

   We received a letter dated March 24, 2008, submitted on behalf of Taxpayer and

D requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to file an election for D to be classified as disregarded entity
for federal tax purposes. This letter responds to that request.

                                       FACTS

   The information submitted discloses that on a, Taxpayer indirectly acquired DE3,

a Country X public limited company, through Taxpayer’s newly formed, tiered
disregarded entities, DE1 and DE2. DE3 was immediately re-registered as a Country X
private company and elected to be classified as a disregarded entity for U.S. federal tax
purposes. DE3 was and continues to be the sole owner of A, B, C, and D (“DE3
Subsidiaries”).

    The DE3 Subsidiaries are limited companies formed under the laws of Country X,

which for U.S federal tax purposes are classified by default as associations taxed as
corporations. Taxpayer intended that elections be made for the DE3 Subsidiaries to be
disregarded entities, effective a. However, each of the DE3 Subsidiaries inadvertently
failed to timely file Form 8832, Entity Classification Election.

                                LAW AND ANALYSIS

    Section 301.7701-3(a) provides, in part, 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. 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(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(b)(2)(ii) provides, in part, that for purposes of § 301.7701-3(b)(2)(i),
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.

    Section 301.7701-3(c)(1)(i) provides, in part, that, except as provided in

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PLR-114002-08

§ 301.7701-3(c)(1)(iv) and (v), an eligible entity may elect to be classified other than as
provided under § 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, in part, 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 such 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.

   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 Internal
Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) provides that the
term “regulatory election” includes an election whose due date is 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.

   Section 301.9100-3(a) provides that requests for relief under § 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 the granting of relief will not prejudice the
interests of the Government.

                                 CONCLUSIONS

    Based on the facts and representations submitted, Taxpayer has established that

the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied. Consequently, D is
granted an extension of time of 60 days from the date of this letter for electing under
§ 301.7701-3 to be treated as a disregarded entity, effective a. D must file Form 8832
within the extension period with the appropriate service center, with a copy of this letter
attached.

   Except for the specific ruling above, we express or imply no opinion concerning

the federal tax consequences of the facts of this case under any other provision of the
Code. Section 301.9100-1(a) provides that the granting of an extension of time for
making an election is not a determination that the taxpayer is otherwise eligible to make
the election.
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  This ruling is directed only to the taxpayer requesting it. According to

§ 6110(k)(3), this ruling may not be used or cited as precedent.

   Pursuant to a power of attorney on file with this office, a copy of this letter is

being forwarded to Taxpayer’s authorized representative.

                                           Sincerely,

                                           /s/

                                           WILLIAM P. O’SHEA
                                           Associate Chief Counsel
                                           (Passthroughs & Special Industries)

Enclosures: 2 copies of this letter
Copy for § 6110 purposes
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