PLR 200852004: The 75-day rule is why a missed check-the-box election needs relief

Plain-English summary

This is one of the shortest letters in the release, and its facts fit in two sentences. A foreign entity was formed on a particular date, it was eligible to elect to be disregarded from its owner as of that date, and the election was not filed on time. The Service granted sixty days to file the Form 8832 with the original effective date.

What makes the letter worth reading is the specific rule that turns a paperwork slip into something needing the Commissioner's permission. Section 301.7701-3(c)(1)(iii) says an election takes effect on the date the entity specifies, or on the filing date if none is given, but the date specified cannot be more than 75 days before the election is filed. That backdating window is the whole problem. A month late is survivable. Discover the omission in month four and the regulation itself forecloses the fix, because no amount of promptness now can reach back to the formation date.

Section 301.9100-3 is the escape. It lets the Commissioner extend the time to make a regulatory election, one whose deadline comes from a regulation rather than the statute, and the check-the-box election is the standard example. Relief is granted when the taxpayer establishes two things: that it acted reasonably and in good faith, and that granting relief will not prejudice the government's interests. That second condition is doing more work than it appears to. It is what stops section 9100 from becoming a hindsight election, where a taxpayer waits to see how the years turn out and then picks the classification that produces the better result.

The letter also sets out why the default rules matter to this taxpayer, and the answer is in section 301.7701-3(b)(2)(i). A foreign eligible entity that makes no election is a partnership if it has two or more members and at least one lacks limited liability, an association taxable as a corporation if all members have limited liability, and disregarded only if it has a single member who does not have limited liability. Most foreign entities that people want disregarded are limited-liability vehicles with one owner, and those default to corporate status. So the missed form is not a neutral omission. It leaves a corporation sitting where the owner believed there was nothing, with an entity-level tax layer and a separate return obligation.

The conclusion grants the relief and requires a copy of the letter to be attached to the election. No opinion is expressed on any other provision, which here includes the underlying premise: the letter says the taxpayer represents it was eligible to be disregarded as of the formation date. Eligibility is assumed, not verified.

PLR 0852008, released the same day, grants the same sixty-day extension to a different foreign entity on essentially the same facts.

This is a clean digital release rather than a scan, so no OCR correction was needed. One artifact of the original word processor survives throughout the release and is kept as published: apostrophes appear where section symbols belong, so the text reads "' 301.9100-1" and "'' 301.9100-1 and 301.9100-3" and "Copy for ' 6110 purposes." The same document switches to a proper section symbol in other paragraphs.

Ruling snapshot

• Question: May a foreign eligible entity that failed to file a timely Form 8832 still elect disregarded status effective from its formation date?
• Outcome: approved. The taxpayer satisfied Treas. Reg. sections 301.9100-1 and 301.9100-3 and is granted sixty days from the date of the letter to file Form 8832 electing to be treated as a disregarded entity effective as of its formation date.
• Key authorities: Treas. Reg. sections 301.7701-2(b), 301.7701-3(a), 301.7701-3(b)(2)(i), 301.7701-3(b)(3), 301.7701-3(c)(1)(i), 301.7701-3(c)(1)(iii), 301.9100-1(b), 301.9100-1(c), 301.9100-2, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 200852004 Third Party Communication: None
Release Date: 12/26/2008 Date of Communication: Not Applicable Index Number: 7701.00-00, 9100.00-00 Person To Contact:
----------------------------------------- -----------, ID No. -------------
-------------------------------------------------- Telephone Number:

----------------------------------------------- Refer Reply To: CC:PSI:B01 PLR-108753-08 Date: September 19, 2008

Legend:

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

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

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

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

This letter responds to the letter dated February 26, 2008, and related correspondence, written on behalf of X, requesting an extension of time under ' 301.9100-1 and ' 301.9100-3 of the Procedure and Administration Regulations to file an entity classification election.

FACTS

The information submitted states that X was formed under the laws of Country on D. X represents X was a foreign entity eligible to elect to be classified as a disregarded entity for federal tax purposes as of D. The election, however, was not timely filed.

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. 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, Entity Classification Election, 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.

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 Code, except E, G, H, and I. Section 301.9100-1(b) defines the term "regulatory election" as including an election whose deadline 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. Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government.

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that X has satisfied the requirements of '' 301.9100-1 and 301.9100-3 and, therefore, it is granted an extension of time of sixty (60) days from the date of this letter to file a Form 8832 to elect to be treated as a disregarded entity for federal tax purposes, effective D. A copy of this letter should be attached to the election. A copy is enclosed for that purpose.

Except as specifically set forth above, we express 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 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 mailed to your authorized representative.

Sincerely,

Curt G. Wilson

Curt G. Wilson
Deputy Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)

Copy of this letter
Copy for ' 6110 purposes