PLR 200851002: 60 days for a foreign entity to elect disregarded status, on a record of consistent treatment

Plain-English summary

X is a foreign entity formed under the laws of Country1 on Date1 and wholly owned by Y, formed under the laws of Country2 on Date2. Ownership of Y has changed hands over time but has always rested entirely with U.S. persons, and A, the majority owner of Y, has always controlled both companies. X intended to elect to be disregarded as an entity separate from its owner effective Date1 and did not file the election on time. The Service granted 60 days from the date of the letter to file Form 8832 for that effective date.

The fact doing the work is the last one recited: X represents that Y and A have consistently treated it as a disregarded entity anyway. The letter never says so expressly. Like PLR 200851005, released the same day, it sets out the section 301.9100-3 standard and then states that the requirements are satisfied without matching the standard to a fact. But unlike that letter it at least puts a fact on the page that a reader can connect to the conclusion, since consistent treatment is what makes relief costless to the government.

The recitation carries a passage in tension with the relief. The letter quotes section 301.7701-3(c)(1)(iii) for the rule that an effective date specified on Form 8832 cannot be more than 75 days before the date the election is filed. That is precisely the limit an extension under section 301.9100-3 overrides, and the gap between Date1 and the date of this letter is plainly longer. The letter does not acknowledge the tension. PLR 200851005 does the same thing with the six month cap of section 301.9100-1(c).

Two details are worth recording against the companion letters. One citation prints as "§ 301.7701-(3)(b)", with the parenthesis around the wrong character. And this letter quotes section 301.9100-1(b) as reaching an election whose due date is prescribed by a regulation published in the Federal Register, whereas PLR 200851001, signed by the same official on the same day out of the same branch, quotes the same regulation as saying the Internal Revenue Bulletin. PLR 200851005 agrees with this letter. The divergence is recorded here rather than resolved, because no citation verification tool was available to this session.

The signature is unusually senior. William P. O'Shea signs as Associate Chief Counsel (Passthroughs & Special Industries) rather than as a branch chief or senior technician reviewer.

Ruling snapshot

• Question: May X receive an extension of time under section 301.9100-3 to file the entity classification election electing disregarded status effective Date1?
• Outcome: Approved. Sixty days from the date of the letter to file Form 8832 with the appropriate service center, effective Date1, with a copy of the letter attached.
• Key authorities: Sections 301.7701-3(a), 301.7701-3(b)(2)(i), 301.7701-3(c)(1)(i) and 301.7701-3(c)(1)(iii); sections 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 200851002 Third Party Communication: None
Release Date: 12/19/2008 Date of Communication: Not Applicable

Person To Contact:
Index Number: 7701.00-00, 9100.00-00, ------------------------, ID No. ------------ 9100.31-00 Telephone Number:
--------------------
----------------------------------------------------- Refer Reply To:
------------------------------------------------------------- CC:PSI:B02
------------------------- PLR-112826-08
Date:
------------------------------
September 10, 2008
-------------------------------

Legend

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

Y = ----------------------------------------------------------
-------------------------------

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

Country1 = ------------------------------------

Country2 = ---------------------------

Date1 = ----------------------

Date2 = -------------------

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

This responds to a letter dated March 7, 2008, and subsequent correspondence, submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X to file an entity classification election.

The information submitted states that X was formed under the laws of Country1 on Date1. X is wholly owned by Y, which was formed under the laws of Country2 on Date2. The ownership of Y has varied, but it has always been owned entirely by U.S. persons. A is the majority owner of Y and has always been in control of both Y and X. X represents that X is a foreign entity eligible to elect to be treated as a disregarded entity for federal tax purposes. X intended to elect to be treated as a disregarded entity for federal tax purposes, effective on Date1. The election, however, was not timely filed. Nevertheless, X represents that it has been consistently treated by Y and A as a disregarded entity for federal tax purposes.

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. Elections are necessary only when an eligible entity does not want to be classified under the default classification or when an eligible entity chooses to change its classification.

Section 301.7701-3(b)(2)(i) provides that, except for certain existing entities described in § 301.7701-3(b)(3), unless a foreign eligible entity elects otherwise, the 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 member that does not have limited liability.

Section 301.7701-3(c)(1)(i) provides that an eligible entity may elect to be classified other than as provided under § 301.7701-(3)(b) by filing Form 8832 with the appropriate service center. Under § 301.7701-3(c)(1)(iii), this election will be effective on the date specified by the entity on Form 8832 or on the date filed if no such date is specified. The date specified on Form 8832 cannot be more than 75 days prior to the date on which the election is filed.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time 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 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 the election. 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. Under § 301.9100-3, a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) granting relief will not prejudice the interests of the government.

Based solely on the information 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 a Form 8832 with the appropriate service center and elect to be treated as a disregarded entity for federal tax purposes, effective Date1. A copy of this letter should be attached to the Form 8832. A copy is enclosed for that purpose.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Internal Revenue Code and the regulations thereunder.

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.

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.

Sincerely,

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

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

cc: