PLR 1224010: IRS grants more time for a foreign disregarded-entity election

Plain-English summary

The IRS granted a domestic corporation 120 days to file Form 8832 for its wholly owned foreign subsidiary and elect to treat the subsidiary as a disregarded entity effective on its formation date. The corporation had intended to make the election but missed the filing deadline while restructuring its foreign operations. The relief is conditioned on filing all required returns and amended returns consistent with the election, including Forms 5471 and 8858 where appropriate. The ruling did not address other tax consequences of the transaction.

Ruling snapshot

• Question: Could the domestic corporation make a late Form 8832 election for its wholly owned foreign subsidiary?
• 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: 201224010 Third Party Communication: None
Release Date: 6/15/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.31-00 ----------------------, ID No. -----------------
Telephone Number:
--------------------
--------------------- Refer Reply To:
----------------------------------- CC:PSI:02
---------------------------- PLR-136727-11
----------------------------- Date:
----------------------------------- February 28, 2012

                                                    LEGEND

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

X =
----------------------------
-------------------------------------------------------------
Y =
----------------------------

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

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

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

    This letter responds to a letter dated September 1, 2011, and subsequent

correspondence, submitted on behalf of X by X’s authorized representative, requesting
that the Service grant X an extension of time under § 301.9100-1(c) of the Procedure
and Administration Regulations to elect to treat Y as a disregarded entity for federal tax
purposes.

                                                    FACTS

     According to the information submitted, X is a domestic corporation. On Date 1,

X’s wholly owned foreign subsidiary formed Y under the laws of Country as part of a
plan to restructure X’s foreign operations. X represents that it always intended to elect
to treat Y as a disregarded entity effective Date 1; however, X failed to timely file Form
8832, Entity Classification Election to elect to treat Y as a disregarded entity for federal
tax purposes effective Date 1.
PLR-136727-11 2

                                 LAW & 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. An eligible entity with a single owner
can elect to be classified as an association or disregarded as an entity separate from its
owner.

    Section 301.7701-3(b)(2) provides guidance on the classification of a foreign

eligible entity for federal tax purposes. Unless the entity elects otherwise, a foreign
eligible entity is treated as an association if all members have limited liability. A foreign
eligible entity with a single owner having limited liability may elect to be treated as a
disregarded entity pursuant to the rules under § 031.7701-3(c).

    Section 301.7701-3(c)(1)(iii) provides that an entity classification election must be

filed on Form 8832 and can be effective up to 75 days prior to the election filing date or
more than 12 months after the election filing date.

   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
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
the term “regulatory election” as including 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 by which the

Commissioner will determine whether to grant an extension of time to make an election.
Section 301.9100-2 provides the rules governing automatic extensions of time for
making certain elections. Section 301.9100-3 describes the conditions under which the
Commissioner will grant requests for relief that do not meet the requirements of
§ 301.9100-2. Requests for relief under § 301.9100-3 will be granted when the
taxpayer provides evidence to establish that (1) the taxpayer acted reasonably and in
good faith, and (2) granting relief will not prejudice the interests of the government.

                                   CONCLUSION

   Based 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, Y
is granted an extension of time of 120 days from the date of this letter to file Form 8832
with the appropriate service center to elect to be classified as a disregarded entity for
PLR-136727-11 3

federal tax purposes effective Date 1. A copy of this letter should be attached to Form
8832 and is enclosed for that purpose.

   This ruling is contingent on X filing within 120 days of this letter all required

returns and amended income tax returns consistent with the relief granted as effective
Date 1. To the extent appropriate these returns must include, but are not limited to, the
following forms: (i) Form 5471, Information Return of U.S. Persons With Respect to
Certain Foreign Corporations, and (ii) Form 8858, Information Return of U.S. Persons
With Respect to Disregarded Entities.

   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 the Power of Attorney on file with this office, a copy of this

letter is being sent to your authorized representative.

  The rulings contained in this letter are 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 rulings, it is subject to verification on
examination.

                                    Sincerely,



                                    Charlotte Chyr
                                    Senior Technician Reviewer
                                    (Passthroughs & Special Industries)

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

cc: