PLR 201113013: IRS grants late entity classification elections for six foreign entities

Plain-English summary

The IRS gave six foreign entities 120 days to file Form 8832 elections to be treated as disregarded entities for federal tax purposes. The entities had not timely filed valid elections but had consistently been treated as disregarded entities. The IRS found that the requirements for late-election relief were satisfied based on the submitted information and representations. As a condition, affected U.S. persons also had to file any missing Forms 8858 for the affected tax periods.

Ruling snapshot

• Question: May six foreign eligible entities receive extra time to file Form 8832 elections to be treated as disregarded entities?
• 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: 201113013
Third Party Communication: None
Release Date: 4/1/2011
Date of Communication: Not Applicable
Index Number: 9100.31-00, 7701.00-00
Person To Contact:
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Refer Reply To:
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Date:
December 01, 2010

Legend

X1 = ------------------------------------
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X2 = ------------------------------------
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X3 = ------------------------------------
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X4 = --------------------
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X6 = -------------------------------
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D1 = --------------------------
D2 = -----------------------
D3 = --------------------------
D4 = -------------------
D5 = --------------------------
D6 = -----------------
D7 = ----------------------

Country1 = ----------------------
Country2 = ------------------------------------

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Country3 = ------------------------------------------------------------------------------------------
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Dear ------------:

This is in response to a letter dated June 21, 2010, submitted on behalf of X1, X2, X3, X4, X5, and X6, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X1, X2, X3, X4, X5, and X6 to file entity classification elections.

FACTS

The information submitted states that X1, X2, and X3 were formed under the laws of Country1 on D1, X4 was formed under the laws of Country2 on D3, X5 was formed under laws of Country3 on D5, and that X6 was formed under the laws of Country1 on D6. X1, X2, and X3 represent that they are foreign entities eligible to elect to be treated as disregarded entities for federal tax purposes, effective D2. X4 represents that it is a foreign entity eligible to elect to be treated as a disregarded entity for federal tax purposes, effective D4. X5 represents that it is a foreign entity eligible to elect to be treated as a disregarded entity for federal tax purposes, effective D5. X6 represents that it is a foreign entity eligible to elect to be treated as a disregarded entity for federal tax purposes, effective D7. However, neither X1, X2, X3, X4, X5, nor X6 timely filed a valid Form 8832, Entity Classification Election, electing to be treated as a disregarded entity. Nevertheless, X1, X2, X3, X4, X5, and X6 represent that they have been consistently treated as disregarded entities for federal tax purposes.

LAW AND ANALYSIS

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

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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.

CONCLUSION

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, X1, X2, and X3 are each 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 D2. X4 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 D4. X5 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 D5. X6 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 D7. A copy of this letter should be attached to each Form 8832.

As a condition for this late election relief, any affected U.S. persons must file, within 120 days of the date of this letter, any Forms 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities, not already filed for all tax periods affected by this ruling, through the present, consistent with X1, X2, X3, X4, X5, and X6 having made timely entity classification elections. Copies of this letter should be attached to any such forms.

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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) provides that it may not be used or cited as precedent.

Sincerely,

Associate Chief Counsel
(Passthroughs and Special Industries)

By: _____
Bradford R. Poston
Senior Counsel, Branch 2
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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