PLR 200901017: Late election to be taxed as an association gets a 60-day extension

Plain-English summary

A foreign entity was formed under the law of its home country and wanted to be treated as an association taxable as a corporation from that first day. It was eligible to elect that treatment, but the Form 8832 was never filed on time.

The election has a short retroactive reach. Under section 301.7701-3(c)(1)(iii) the effective date named on the form cannot be more than 75 days before the form is filed, so once that window closed the entity could not reach back to its formation date on its own.

It asked for a discretionary extension under section 301.9100-3, representing that it had acted reasonably and in good faith, that relief would not prejudice the government, and that it was not using hindsight. That last point matters, because an entity choosing its classification after the fact could otherwise pick whichever answer the intervening year's results made cheaper.

The IRS concluded the section 301.9100-3 standards were met and granted 60 days from the date of the letter to file the Form 8832 electing association status effective as of the formation date, with a copy of the letter attached.

Ruling snapshot

• Question: May a foreign eligible entity that missed the Form 8832 deadline
  get an extension to elect association status back to its formation date?
• Outcome: Approved. A 60-day extension from the date of the letter.
• Key authorities: Treas. Reg. §§ 301.7701-2(a) and (b), 301.7701-3(a),
  (b)(2), (c)(1)(i) and (c)(1)(iii), 301.7701-4, 301.9100-1, 301.9100-2, 301.9100-3(a).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 200901017 Third Party Communication: None
Release Date: 1/2/2009 Date of Communication: Not Applicable Person To Contact: Index Number: 7701.00-00, 9100.00-00 ------------------------, ID No. ------------- Telephone Number:
--------------------
----------------------------------- Refer Reply To:
------------------------------------- CC:PSI:B1
----------------------------------- PLR-120563-08
------------------------- Date:
October 01, 2008

Legend

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

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

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

This letter responds to the letter dated April 28, 2008 and related correspondence, written on behalf of X, requesting a ruling that it be granted an extension of time pursuant to section 301.9100-3 of the Procedure and Administration Regulations in which to elect to be treated as an association taxable as a corporation for federal tax purposes under section 301.7701-3(c).

FACTS

Based on the information submitted and representations made therein, the relevant facts are as follows: X was validly formed under Country law on Date 1. X represents that as of Date 1, X was eligible to make an election under section 301.7701-3(c), to be taxed as a corporation for federal tax purposes. However, the Form 8832, Entity Classification Election, inadvertently was not timely filed.

After X realized that it had not timely filed an election to be treated as an association taxable as a corporation, it requested relief under section 301.9100-3.

X represents that it has acted reasonably and in good faith, that granting relief will not prejudice the interests of the government, and that it is not using hindsight in making the election.

LAW AND ANALYSIS

Section 301.7701-3(a) provides that a business entity that is not classified as a corporation under section 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an "eligible entity") can elect its classification for federal tax purposes. A "business entity" is an entity recognized for federal tax purposes that is not properly classified as a trust under section 301.7701-4 or otherwise subject to special treatment under the Code. Section 301.7701-2(a). An eligible entity with a single owner can elect to be classified either as an association (and thus a corporation under section 301.7701-2(b)(2)) or as an entity separate from its owner.

Section 301.7701-3(b)(2)(C) provides that unless it elects otherwise, a foreign eligible entity is disregarded as an entity separate from its owner if it has a single owner that does not have limited liability, or under § 301.7701-3(b)(2)(B) is an association if all members have limited liability.

To elect to be classified other than as provided in section 301.7701-3(b), an eligible entity must file Form 8832, Entity Classification Election, with the designated service center. Section 301.7701-3(c)(1)(i). An election can be effective on the date specified on the Form 8832 or on the date filed if no such date is specified. The effective date specified on the Form 8832 cannot be more than 75 days prior to the date the election is filed. Section 301.7701-3(c)(1)(iii).

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 301.9100-1(a). 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 section 301.9100-2. Requests for relief under section 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 on the facts submitted and representations made, we conclude that the requirements of section 301.9100-3 have been satisfied. Accordingly, X is granted an extension of time of sixty (60) days from the date of this letter to elect to be treated as an association for federal tax purposes, effective Date 1. The election should be made by filing Form 8832 with the appropriate service center. A copy of this letter should be attached to the election.

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 will be sent to your authorized representative.

Sincerely,

William P. O’Shea

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

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

cc: