PLR 1037010: IRS granted late disregarded-entity election relief to a foreign entity

Plain-English summary

The IRS granted a foreign entity a 120-day extension to file Form 8832 and elect disregarded-entity treatment for federal tax purposes. The entity represented that it had been eligible for that classification, had consistently been treated that way by its owner, and had failed to file the election on time. The IRS concluded that the requirements for relief under Treas. Reg. §§ 301.9100-1 and 301.9100-3 were satisfied. As a condition of the relief, affected U.S. persons must file Form 8858 for all affected tax periods and attach a copy of the ruling.

Ruling snapshot

• Question: Could the foreign entity obtain extra time to make its disregarded-entity election?
• Outcome: Approved
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-2, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

                                               Third Party Communication: None

Number: 201037010 Date of Communication: Not Applicable
Release Date: 9/17/2010
Person To Contact:
Index Number: 7701.00-00, 9100.00-00, ------------------------, ID No. -------------
9100.31-00 Telephone Number:
---------------------
Refer Reply To:

----------------------------------------- CC:PSI:B02
------------------- PLR-106868-10
Date:
------------- June 08, 2010

Legend

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

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

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

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

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

  This responds to a letter dated February 1, 2010, submitted on behalf of X,

requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations for X to file an entity classification election.

   The information submitted states that X was formed under the laws of Country on

Date. X is entirely owned by Y. X represents that X is a foreign entity that was eligible to
elect to be treated as a disregarded entity for federal tax purposes, effective on Date.
The election, however, was not timely filed. Nevertheless, X represents that it has been
consistently treated by Y as a disregarded entity for federal tax purposes.

  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 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.

   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) provides
that the term “regulatory election” includes an election whose due date 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 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 §§ 301.9100-1 and 301.9100-3 have been satisfied.
As a result, X is granted an extension of time of 120 days from the date of this letter to
file a Form 8832 with the appropriate service center and 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.

   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
Internal Revenue Code and the regulations thereunder.

  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.

   As a condition for this late election relief, any affected U.S. persons must file,

within 120 days of the date of this letter, Form 8858, Information Return of U.S. Persons
With Respect to Foreign Disregarded Entities, for all tax periods affected by this ruling,
through the present, consistent with X having made a timely entity classification
election. Copies of this letter should be attached to such forms.

     In accordance with the 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:    _______________________________
                                       Richard T. Probst, Branch Reviewer
                                       Branch 2
                                       Office of Associate Chief Counsel
                                       (Passthroughs & Special Industries)

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