PLR 1216014: IRS grants more time for a foreign entity to elect partnership status

Plain-English summary

A foreign limited liability partnership intended to be classified as a partnership for federal tax purposes but did not timely file Form 8832. The entity had sold an interest in a domestic limited liability company and represented that it had paid withholding tax on effectively connected income attributable to the sale. The IRS concluded that the requirements for relief were satisfied and granted 120 days from the letter date to file the election, conditioned on filing all required federal income tax and information returns from the redacted year forward consistently with the relief. The ruling did not otherwise address the tax consequences of the transaction.

Ruling snapshot

• Question: May the foreign entity receive an extension of time to elect partnership classification effective on the requested date?
• Outcome: Approved, subject to filing the election and required returns
• Key authorities: IRC § 1446; Treas. Reg. §§ 301.7701-2, 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: 201216014 Third Party Communication: None
Release Date: 4/20/2012 Date of Communication: Not Applicable
Person To Contact:
Index Numbers: 7701.00-00, 9100.00-00, ----------------------, ID No. -----------------
Telephone Number:
9100.31-00
---------------------
Refer Reply To:
--------------------------------------------- CC:PSI:B03
------------------------------ PLR-131405-11
----------------------------------- Date:
----------------------------- December 08, 2011

                                                LEGEND

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

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

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

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

Date 2 = ------------------

Year = -------

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

   This letter responds to your letter dated July 22, 2011, and subsequent

correspondence, submitted on behalf of X by X’s authorized representatives, requesting
an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations to file an election to be classified as a partnership for federal tax purposes.

                                                 FACTS

      According to the information submitted, X was formed on Date 1 under the laws

of Country as a limited liability partnership. X holds an interest in Y, a domestic limited
liability company. On Date 2, X sold its interest in Y.
PLR-131405-11 2

   X represents that, through its agent, it has paid withholding tax with respect to its

foreign partners pursuant to § 1446 of the Internal Revenue Code (Code) and the
regulations thereunder for effectively connected income (ECI) realized under the
principles of Rev. Rul. 91-32, 1991-1 C.B. 107, on the sale of Y on Date 2.

   X intended to be treated as a partnership for federal tax purposes effective Date

1. However, X inadvertently failed to timely file a Form 8832, Entity Classification
   Election.

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

    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, in part, 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 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 301.7701-3(d)(1)(i) provides that for purposes of § 301.7701-3, a foreign
   

   eligible entity is relevant when its classification affects the liability of any person for
   federal tax or information purposes. The date that the classification of a foreign eligible
   entity is relevant is the date an event occurs that creates an obligation to file a federal
   PLR-131405-11 3

tax return, information return, or statement for which the classification of the entity must
be determined.

    Section 301.7701-3(d)(1)(ii)(A) provides that for purposes of § 301.7701-3,

except as provided in § 301.7701-3(d)(1)(ii)(B), the classification for Federal tax
purposes of a foreign eligible entity that files Form 8832, “Entity Classification Election”,
shall be deemed to be relevant only on the date the entity classification election is
effective.

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

    Rev. Rul. 91-32 provides that when a nonresident alien individual sells an

interest in a partnership, the gain from the disposition of the partnership interest that is
attributable to the ECI property of the partnership is subject to tax.

                                   CONCLUSION

    Based solely on the facts submitted and 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 elect to be
classified as a partnership for federal tax purposes effective Date 1. The election
should be made by filing a properly executed Form 8832 with the appropriate service
center. A copy of this letter should be attached to the election. A copy of this letter is
attached for this purpose.

   This ruling is contingent upon the filing within 120 days of this letter any and all

required Federal income tax and information returns from Year to the present consistent
with the requested relief.
PLR-131405-11 4

   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:        ______________________________________
                                  Richard T. Probst
                                  Senior Technician Reviewer, Branch 3
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

Enclosures (2):

  A copy of this letter
  A copy for § 6110 purposes

cc: