PLR 201311013: IRS grants extra time for a foreign entity classification election

Plain-English summary

The IRS granted a parent company 120 days to file Form 8832 for a wholly owned foreign entity to be treated as disregarded for federal tax purposes. The entity had failed to make the election on time, and the parent requested relief after the entity liquidated into the parent. The extension is conditioned on filing the form and all required, consistent returns within the 120-day period. The IRS did not express an opinion on other federal tax consequences.

Ruling snapshot

• Question: May the parent receive extra time to elect disregarded-entity treatment for its foreign subsidiary?
• Outcome: approved.
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-2, 301.9100-3; IRC § 6110.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201311013
Release Date: 3/15/2013
Index Numbers: 7701.00-00, 9100.31-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B03 – PLR-134308-12
Date: December 11, 2012

LEGEND

Company = ----------------------------------
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Parent = ----------------------------------------------
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Territory = ---------------

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

a = ----------------------------

b = ---------------------

c = ------------------------

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

We received a letter dated August 8, 2012, submitted on behalf of Parent requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for Parent, as successor to Company, to file an election under § 301.7701-3(a) for Company to be classified as a disregarded entity for federal tax purposes.

FACTS

The information submitted discloses that Company was formed on a, as a corporation under the laws of Territory. Company’s sole owner was Parent, a corporation under the laws of Country, before Company liquidated into Parent on b. Company failed to timely file Form 8832, Entity Classification Election, to be classified as a disregarded entity for federal tax purposes, effective c.

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 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.

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, Parent has established on behalf of Company that the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied. Consequently, Parent is granted on behalf of Company an extension of time of one hundred twenty (120) days from the date of this letter to elect under § 301.7701- 3 for Company to be treated as a disregarded entity, effective c. Parent must file on behalf of Company Form 8832 within the extension period with the appropriate service center, with a copy of this letter attached. This ruling is contingent on Parent filing within 120 days of the date of this letter all required returns and an amended income tax return consistent with the requested relief being effective c. These returns must include, but are not limited to, Form 8858, Information Return of U.S. Persons with respect to Foreign Disregarded Entities, such that the form reflects the consequences of the relief granted in this letter.

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 Parent’s authorized representatives.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: /s/
Mary Beth Carchia
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures: Copy of this letter
Copy for § 6110 purposes