PLR 200852008: A foreign entity that missed its Form 8832 gets sixty days to file it

Plain-English summary

A foreign entity meant to be invisible for United States tax purposes, so that its owner would simply report its income directly. The election that accomplishes that is made on Form 8832. Nobody filed it. This three-page letter gives the entity sixty days to file it late, effective on the date originally intended.

The reason a missed check-the-box election matters so much for a foreign entity is the default rule. Under section 301.7701-3(b)(2), a foreign eligible entity whose members all have limited liability is treated as an association taxable as a corporation unless it elects otherwise. Domestic entities default the other way. So the same oversight that would leave a domestic single-member company disregarded leaves a foreign one sitting there as a corporation, with a separate layer of tax, potential controlled foreign corporation consequences, and losses trapped inside it rather than flowing to the owner.

The form has a built-in window that is generous but finite. An entity classification election may be effective up to 75 days before the form is filed or up to 12 months after. Once the intended effective date falls more than 75 days back, that window is gone and the only way in is relief from the Service.

That relief comes from section 301.9100-3, which is the general regime for extending deadlines that regulations rather than statutes impose. A deadline set by regulation is a regulatory election, the Commissioner has discretion to extend it, and relief is granted where the taxpayer establishes that it acted reasonably and in good faith and that the government is not prejudiced. The letter recites the framework and then applies it in a single sentence, which is characteristic of these rulings. The stated cause is an oversight, and the entity had already made clear what it intended.

The letter is short enough to be worth reading as a model of the genre. Almost half of it is the recitation of the classification and 9100 regulations, and the analysis is a conclusion rather than an argument. That reflects how routine this relief has become for late entity classification elections, and it is a reminder that the substantive question, whether treating the entity as disregarded produces the right answer, was never before the Service. The letter says so directly: except as expressly provided, no opinion is expressed on the tax consequences of any aspect of any transaction referenced in it.

The mechanics matter for anyone using such a letter. The election is made by filing Form 8832 with the appropriate service center, and a copy of the ruling must be attached to the form. The Service encloses a copy for exactly that purpose.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: the letter writes "under section 301.7701-2(b)(2)" using the word "section" where the surrounding text uses the section symbol, and "This ruling is directed only to the taxpayer(s) requesting it."

Ruling snapshot

• Question: May a foreign eligible entity that failed to file Form 8832 on time get an extension to elect disregarded-entity treatment retroactive to its intended effective date?
• Outcome: approved. The requirements of sections 301.9100-1 and 301.9100-3 are satisfied, and an extension of 60 days from the date of the letter is granted to elect to treat the entity as disregarded for federal tax purposes, effective on the originally intended date.
• Key authorities: Treas. Reg. sections 301.7701-2(b), 301.7701-3(a), 301.7701-3(b)(2), 301.7701-3(c), 301.9100-1(b), 301.9100-1(c), 301.9100-2, 301.9100-3, 301.9100-3(a).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 200852008 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:B1
----------------------------------------------------- PLR-114214-08 Date: September 19, 2008

Legend

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

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

Date 1 = -----------------

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

This is in response to a letter dated March 20, 2008, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to file an election to treat X as an entity disregarded as separate from its owner for federal tax purposes under § 301.7701-3(c).

Facts

According to the information submitted, X is an entity organized under the laws of Country. X intended to make an election to be treated as a disregarded entity effective Date 1. However, due to an oversight, Form 8832, Entity Classification Election, 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. An eligible entity with a single owner can elect either to be classified as an association (and thus a corporation under section 301.7701-2(b)(2)) or to be disregarded as an entity separate from its owner.

Section 301.7701-3(b)(2) provides guidance on the classification of a foreign eligible entity for federal tax purposes. Generally, unless the entity makes an election to be treated otherwise, a foreign eligible entity is treated as an association taxable as a corporation if all members have limited liability. If a foreign eligible entity has only one owner, it may elect to be treated as a disregarded entity pursuant to the rules in
§ 301.7701-3(c). If a foreign eligible entity has more than one owner, it may elect to be treated as a partnership pursuant to the rules in § 301.7701-3(c).

Section 301.7701-3(c) further provides that an entity classification election must be filed on Form 8832, Entity Classification Election, and can be effective up to 75 days prior to the date the form is filed or up to 12 months after the date on which the form 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 subtitles E, G, H, and I. Section 301.9100-1(b) defines the term regulatory election as including an election with a deadline 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. Section 301.9100-3(a).

Conclusion

Based solely upon the information submitted, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a result, an extension of 60 days from the date of this letter is granted to elect to treat X as a disregarded entity for federal tax purposes, effective Date 1. The entity classification election should be made by filing Form 8832 with the appropriate service center. A copy of this letter should be attached to the Form 8832. A copy is enclosed for that purpose.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

This ruling is directed only to the taxpayer(s) 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 your authorized representatives.

Sincerely,

Curtis G. Wilson

Curtis G. Wilson
Deputy Associate Chief Counsel
(Passthroughs & Special Industries)

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