PLR 1032015: IRS granted late-election relief for disregarded-entity status

Plain-English summary

A foreign eligible entity intended to elect disregarded-entity status for federal tax purposes but inadvertently failed to timely file Form 8832. The IRS concluded that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. It granted the entity 120 days from the ruling date to file the form and make the election effective on the stated date. The owner also had to file required returns and information forms consistent with the relief.

Ruling snapshot

• Question: Can a foreign eligible entity receive more time to make a late disregarded-entity election?
• Outcome: Approved
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-3; IRC § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201032015 Third Party Communication: None
Release Date: 8/13/2010 Date of Communication: Not Applicable
Person To Contact:
Index Number: 7701.00-00, 9100.31-00 --------------, ID No. -------------
Telephone Number:
---------------------
------------------------ Refer Reply To:
------------- CC:PSI:B02
---------------------------------- PLR-130936-09
--------------------------------------- Date:
March 02, 2010

Legend

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

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

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

Date = ---------------------

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

This responds to a letter dated June 23, 2009, submitted on behalf of X, requesting that
the Service grant X an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to elect to be treated as a disregarded entity.

The information submitted states that X was formed as a company under the laws of
Country on Date and is wholly-owned by Y. X represents that as a foreign eligible
entity, X was eligible to elect to be treated as a disregarded entity effective Date.
However, X inadvertently failed to timely file a Form 8832, Entity Classification Election.

Section 301.7701-3(a) of the Income Tax Regulations provides that an eligible entity
with at least two members may elect to be classified as either an association (and thus
a corporation under § 301.7701-2(b)(2)) or as a partnership, and an eligible entity with a
single owner can elect to be classified as an association or to be disregarded as an
entity separate from its owner.
PLR-130936-09 2

Section 301.7701-3(a) further 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)(i) provides that except as provided in § 301.7701-3(b)(3),
unless the entity elects otherwise, a foreign eligible 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 owner that does not have limited liability.

Section 301.7701-3(b)(2)(ii) provides that for purposes of § 301.7701-3(b)(2)(i), a
member of a foreign eligible entity has limited liability if the member has no personal
liability for the debts of or claims against the entity by reason of being a member.

Section 301.7701-3(c) provides that an entity classification election must be filed on
Form 8832 and can be effective up to seventy-five (75) days prior to the date the form is
filed or up to twelve (12) months after the date on which the form 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) defines
the term “regulatory election” as an election whose due date is prescribed by a
regulation published in the Federal Register or a revenue ruling, revenue procedure,
notice, or announcement 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 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 § 301.9100-3 have been satisfied. As a result, X is granted an
extension of time of one hundred twenty (120) days following the date of this letter to file
Form 8832 and to elect to be treated as a disregarded entity for federal tax purposes
effective Date. A copy of this letter should be attached to the Form 8832. A copy is
enclosed for that purpose.
PLR-130936-09 3

This ruling is contingent on the owner of X filing within 120 days of this letter all required
returns and amended income tax returns consistent with the requested relief being
effective Date. To the extent appropriate these returns must include, but are not limited
to, the following forms: (i) Forms 5471, Information Return of U.S. Persons With
Respect to Certain Foreign Corporations (ii) Forms 8865, Return of U.S. Persons With
Respect to Certain Foreign Partnerships, and (iii) Forms 8858, Information Return of
U.S. Persons With Respect to Disregarded Entities, such that these forms reflect the
consequences of the relief granted in this letter.

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 Code.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent
to X’s authorized representative.

                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)



                                By:      ________________________________
                                         Melissa Liquerman, Chief
                                         Branch 2
                                         Office of Associate Chief Counsel
                                         (Passthroughs & Special Industries)

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