PLR 200936025: Sixty-day extension granted for a disregarded-entity election

Plain-English summary

The IRS granted an entity an extension of 60 days to file Form 8832 and elect to classify its subsidiary as a disregarded entity for federal tax purposes, effective on an earlier specified date. The original election was invalid because of procedural defects, although the subsidiary was eligible for the requested classification. The IRS concluded that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. The ruling was based solely on the submitted facts and representations and expressed no opinion on other tax consequences.

Ruling snapshot

• Question: May the taxpayer receive an extension of time to file a valid election to classify its subsidiary as a disregarded entity?
• Outcome: Approved
• Key authorities: IRC §§ 7701 and 6110(k)(3); Treas. Reg. §§ 301.7701-3 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200936025
Third Party Communication: None
Release Date: 9/4/2009
Date of Communication: Not Applicable
Index Number: 9100.31-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:PSI:B02
PLR-153481-08
Date:
June 03, 2009

X = ---------------------------------------------------------------------------------------------------
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A = ---------------------------------------------------------------------------------------------------
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B = ---------------------------------------------------------------------------------------------------
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Country = ----------------

D1 = ---------------------------------------------------------------------------------------------------
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D2 = ---------------------------------------------------------------------------------------------------
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D3 = -----------------------

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

This is in response to a letter dated December 18, 2008, and subsequent correspondence, submitted on behalf of X by its authorized representative, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election to classify A, its subsidiary, as a disregarded entity for federal tax purposes.

The information submitted states that A was formed under the laws of Country on D1. X represents that on D1, A was wholly owned by X, and on D2, a series of transactions under § 368(a)(1)(C) took place resulting in A becoming wholly owned by B, a subsidiary of X. A’s default status was as an association taxable as a corporation
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for federal tax purposes. A was eligible to be classified as a disregarded entity for federal tax purposes effective D2. On or about D3, a Form 8832, Entity Classification Election, for X to elect to treat A as a disregarded entity effective D2 was filed. However, this election was invalid due to procedural defects.

Section 301.7701-2(a) generally provides that a business entity is any entity recognized for federal tax purposes that is not properly classified as a trust under § 301.7701-4 or otherwise subject to special treatment under the Internal Revenue Code.

Section 301.7701-3(a) provides that so long as a business entity is not classified as a corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7) or (8) (an eligible entity), it may elect its classification for federal tax purposes.

Section 301.7701-3(b)(2) provides guidance on the classification of a foreign eligible entity for federal tax purposes. Generally, a foreign eligible entity is treated as an association taxable as a corporation if all members have limited liability, unless the entity makes an election to be treated otherwise. If the 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).

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 a 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 on the election form. The date specified on Form 8832 cannot be more than 75 days prior to the date on which the election is filed and cannot be more than 12 months after the date on which the election is filed.

Section 301.7701-3(c)(2)(iii) provides that if an election is made to change the classification of an entity, each person who was an owner on the date that any transactions under § 301.7701-3(g) are deemed to occur, and who is not an owner at the time the election is filed, must also sign the election.

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 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 Internal Revenue Bulletin.

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
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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 request 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.

Based solely on the facts submitted and representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Accordingly, X is granted an extension of sixty (60) days from the date of this letter to elect to classify A as a disregarded entity for federal tax purposes, effective D2. 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 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, copies of this letter will be sent to X’s authorized representatives.

Sincerely,

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

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