PLR 201124010: IRS grants late election relief for a foreign entity

Plain-English summary

The IRS granted a foreign entity 120 additional days to file Form 8832 and elect to be treated as disregarded for federal tax purposes. The entity was wholly owned by a parent and had intended to use that classification from the specified effective date, but it failed to file the election on time. The IRS found that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. The ruling was conditioned on filing the form with the appropriate service center and attaching a copy of the ruling.

Ruling snapshot

• Question: Should the taxpayer receive an extension of time to make an entity-classification election under the applicable regulations?
• Outcome: Approved.
• Key authorities: IRC §§ 7701, 9100, 6110; Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-2, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201124010
Third Party Communication: None
Release Date: 6/17/2011
Date of Communication: Not Applicable
Person To Contact:
Index Number: 7701.00-00, 9100.00-00,
----------------------, ID No. -----------------
Telephone Number:
9100.31-00
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Refer Reply To:
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CC:PSI:B03
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PLR-144321-10
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Date:
----------------------------------------- February 16, 2011

LEGEND

X = ---------------------------------------------------------------------------------------------------
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Parent = ---------------------------------------------------------------------------------------------------
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Country = ----------------------

Date 1 = ------------------

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

This letter responds to your letter dated October 4, 2010, and subsequent correspondence, submitted on behalf of X by X’s authorized representatives, requesting a ruling under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations, that X be granted an extension of time to file an election to be disregarded as an entity separate from its owner under § 301.7701-3(c).

FACTS

X was formed under the laws of Country on Date 1. X is wholly-owned by Parent. Parent intended that X be treated as disregarded as an entity separate from its owner, effective Date 1. However, X inadvertently failed to timely file a Form 8832, Entity Classification Election.

LAW AND ANALYSIS
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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 as provided in § 301.7701-3. An eligible entity with a single owner can elect to be classified as an association (and thus a corporation under § 301.7701-2(b)(2)) or to be disregarded as an entity separate from its owner.

Section 301.7701-3(b)(2)(i) provides that, unless it 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 that 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 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. If an election specifies an effective date more than 75 days prior to the date on which the election is filed, it will be effective 75 days prior to the date it was filed.

Section 301.9100-1(c) provides that the Commissioner has discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 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, except subtitles E, G, H, and I. Section 301.9100-1(b) defines a regulatory election to include an election whose due date is prescribed by a regulation published in the Federal Register.

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 subject to § 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
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taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.

CONCLUSION

Based solely on the facts 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 Form 8832 with the appropriate service center and to elect to be classified as a disregarded entity for federal tax purposes effective Date 1. A copy of this letter should be attached to the Form 8832. A copy is enclosed for that purpose.

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

In accordance with a power of attorney on file with this office, we are sending a copy of this letter to your authorized representatives.

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 ruling request, it is subject to verification on examination.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: ___/s/_______ James A. Quinn
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2):

Copy of this letter
Copy for § 6110 purposes

cc: