PLR 1113005: IRS grants extra time to elect partnership classification

Plain-English summary

The IRS gave a foreign entity 120 days to file Form 8832 and elect partnership classification for federal tax purposes. The entity had not filed the election after receiving inadequate advice about the consequences of making or not making the election. The relief was conditioned on the owners filing all required and amended returns consistent with the requested classification, including applicable Forms 5471, 8865, and 8858. The ruling did not determine whether the entity was otherwise eligible to make the election.

Ruling snapshot

• Question: May the foreign entity receive extra time to file Form 8832 and elect to be treated as a partnership?
• Outcome: Approved.
• Key authorities: IRC §§ 7701 and 6110; Treas. Reg. §§ 301.7701-3 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201113005 Third Party Communication: None
Release Date: 4/1/2011 Date of Communication: Not Applicable
Index Number: 9100.31-00
Person To Contact:
---------------------------- --------------, ID No. -----------------
------------------------ Telephone Number:
------------------------------------------------------------ ---------------------
------- Refer Reply To:
------------------------------- CC:PSI:03
PLR-126590-10
Date:
December 01, 2010

Company = -------------------------------------------------------------------------------------------------
-----------------------

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

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

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

    This responds to a letter dated June 11, 2010, and subsequent correspondence,

submitted on behalf of Company requesting an extension of time under § 301.9100-3 of
the Procedure and Administration Regulations to file an election under § 301.7701-3(c)
to be treated as a partnership for federal tax purposes.

                                                 FACTS

     Company was formed under the laws of Country on Date. Company represents

that it is a foreign entity eligible to elect to be treated as a partnership for Federal tax
purposes. As Company was not properly advised regarding the consequences of
making or not making an entity election, Company failed to file Form 8832, Entity
Classification Election, electing to treat Company as a partnership effective Date.

                                       LAW AND ANALYSIS

    Section 301.7701-3(a) provides, in part, 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 as provided in
§ 301.7701-3. An eligible entity with at least two members can elect to be classified as
either an association (and thus a corporation under § 301.7701-2(b)(2)) or 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-126590-10 2

     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)(1)(i) provides, in part, that, except as provided in

§ 301.7701-3(c)(1)(iv) and (v), an eligible entity may elect to be classified other than as
provided under § 301.7701-3(b), or to change its classification, by filing Form 8832 with
the service center designated on Form 8832.

     Section 301.7701-3(c)(1)(iii) provides, in part, that an election made under

§ 301.7701-3(c)(1)(i) 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 effective date
specified on Form 8832 can not be more than 75 days prior to the date on which the
election is filed and can not be more than 12 months after the date on which the
election 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 Internal
Revenue Code (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 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.

   Section 301.9100-3(a) provides that requests for relief under § 301.9100-3 will be

granted when the taxpayer provides the evidence (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer
acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.
PLR-126590-10 3

                                  CONCLUSION

   Based solely on the information submitted and the representations made, we

conclude that Company has satisfied requirements of §§ 301.9100-1 and 301.9100-3.
Consequently, Company is granted an extension of time of one hundred twenty (120)
days from the date of this letter to file a Form 8832 with the appropriate service center
to elect to be treated as a partnership effective Date. A copy of this letter should be
attached to the Form 8832.

    This ruling is contingent on the owners of Company filing within 120 days of this

letter all required returns and amended income tax returns consistent with the requested
relief. These returns may 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. A copy of this letter should be attached to any such returns.

   Except for the specific ruling above, we express or imply no opinion concerning

the Federal tax consequences of the facts of this case under any other provision of the
Code. In addition, § 301.9100-1(a) provides that the granting of an extension of time for
making an election is not a determination that the taxpayer is otherwise eligible to make
the election.

  This ruling is directed only to the taxpayer requesting it. According to

§ 6110(k)(3) of the Code, this ruling may not be used or cited as precedent.

    Under a power of attorney on file with this office, we are sending a copy of this

letter to Company’s authorized representative.
PLR-126590-10 4

   The ruling contained in this letter is based upon information and representations

submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for ruling, it is subject to verification on examination.

                                 Sincerely,

                                 Associate Chief Counsel
                                 (Passthroughs & Special Industries)


                                   /s/
                           By:
                                 Danielle M. Grimm
                                 Acting Senior Technician Reviewer
                                 Branch 3
                                 (Passthroughs & Special Industries)

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