PLR 1224008: IRS grants more time for a foreign partnership election

Plain-English summary

The IRS granted foreign company X 120 days to file Form 8832 and elect to be treated as a partnership effective on a specified earlier date. X had been classified by default as an association and missed the deadline for its intended partnership election. The relief is conditioned on X and its owners filing all required returns and amended returns consistent with the deemed liquidation and partnership treatment, including Form 8865 where appropriate. The ruling did not determine whether X was otherwise eligible for the election.

Ruling snapshot

• Question: Could X make a late Form 8832 election to be treated as a partnership?
• Outcome: Approved, with 120 days from the ruling date to file the election and related returns.
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201224008
Release Date: 6/15/2012
Index Numbers: 7701.00-00, 9100.31-00 Person To Contact:
----------------------, ID No. -------------
Telephone Number:

                                                                ---------------------

---------------------------- Refer Reply To:
----------------------- CC:PSI:B03 – PLR-136484-11
----------------------------------- Date:
---------------------------- January 23, 2012

                                                  LEGEND

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

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

Country 1 = ---------------------

Country 2 = ------------------------------------

Individual = -----------------

D1 = ---------------------

D2 = ----------------------

D3 = ---------------------------

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

   We received a letter dated August 15, 2011, and subsequent correspondence,

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

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

1 on D1. X’s majority shareholder is Individual, a Country 1 citizen but a U.S. tax
resident. By default classification, X was an association for federal tax purposes. X
failed to file timely Form 8832, Entity Classification Election, to be classified as a
partnership for federal tax purposes, effective D2. X represents that all of its U.S.
owners during the period before the D2 effective date of its elective change in entity
classification will be notified of X’s deemed liquidation and any resulting gain or loss.

   Y, which is indirectly owned by X through a wholly owned subsidiary, was formed

under the laws of Country 2 on D3. Y failed to file timely Form 8832 to be classified as
a disregarded entity for federal tax purposes, effective D3.

                                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.

     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, in part, 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,
Entity Classification Election, 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.
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   Section 301.7701-3(g)(1)(ii) provides that if an eligible entity classified as an

association elects under § 301.7701-3(c)(1)(i) to be classified as a partnership, the
following is deemed to occur: The association distributes all of its assets and liabilities to
its shareholders in liquidation of the association, and immediately thereafter, the
shareholders contribute all of the distributed assets and liabilities to a newly formed
partnership. Under § 301.7701-3(g)(3)(i), any transactions that are deemed to occur
under § 301.7701-3(g) as a result of a change in classification are treated as occurring
immediately before the close of the day before the election is effective.

   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 regulatory 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.

                                  CONCLUSION

    Based on the facts and representations submitted, X has established that the

requirements of §§ 301.9100-1 and 301.9100-3 are satisfied. Consequently, X is
granted an extension of time of one hundred twenty (120) days from the date of this
letter to elect under § 301.7701-3 to be treated as a partnership, effective D2. X must
file Form 8832 within the extension period with the appropriate service center, with a
copy of this letter attached. This ruling is contingent on X and the owners of X filing
within 120 days of the date of this letter all required returns and amended income tax
returns consistent with the requested relief (including the application of § 301.7701-
3(g)(1)(ii)) being effective D2. To the extent appropriate, these returns must include, but
are not limited to, Forms 8865, Return of U.S. Persons With Respect to Certain Foreign
Partnerships, such that these forms reflect the consequences of the relief granted in this
letter.
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   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 X’s authorized representative.

                                          Sincerely,

                                          Associate Chief Counsel
                                          (Passthroughs & Special Industries)


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

Enclosures: Copy of this letter
Copy for § 6110 purposes