PLR 201321001: IRS grants two foreign entities more time to elect disregarded-entity status

Plain-English summary

Two foreign entities asked the IRS for more time to file Form 8832 elections to be treated as disregarded entities for federal tax purposes. Their parent intended the elections to be effective on the dates the entities were acquired, but the entities missed the filing deadline through inadvertence. The IRS concluded that the requirements for relief under Treasury Regulations §§ 301.9100-1 and 301.9100-3 were satisfied. It granted each entity an additional 120 days from the ruling date to file the election, effective as of the requested dates. The ruling matters because entity classification can affect how an entity is treated for federal tax purposes.

Ruling snapshot

• Question: May two foreign entities receive more time to file Form 8832 elections to be classified as disregarded entities?
• Outcome: Approved
• Key authorities: IRC §§ 7701 and 9100; 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: 201321001
Third Party Communication: None
Release Date: 5/24/2013
Date of Communication: Not Applicable
Index Number: 9100.00-00, 7701.00-00
Person To Contact:
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----------------------------------------------------- Telephone Number:
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Refer Reply To:
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CC:PSI:B03
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PLR-131111-12 and PLR-131112-12
------------------------------------------ Date: January 16, 2013

Legend:

Parent = --------------------------------------------------
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X1 = --------------------------------------------------
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X2 = ---------------------------------------------------------
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Country1 = --------------

Country2 = ------

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

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

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

This responds to a letter dated June 15, 2012, submitted on behalf of X1 and X2, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X1 and X2 to file entity classification elections to be classified as disregarded entities for federal tax purposes.

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Facts

The information submitted states that X1 was formed under the laws of Country1 and that X2 was formed under the laws of Country2. X1 was acquired by Parent on D1. X2 was acquired by Parent on D2. X1 and X2 represent that they are both foreign entities eligible to be classified as a disregarded entity for federal tax purposes. Parent intended X1 and X2 to be classified as disregarded entities effective D1 and D2, respectively. However, due to inadvertence, both X1 and X2 failed to timely file a Form 8832, Entity Classification Election.

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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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 submitted and the representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly, X1 and X2 are each granted an extension of time of 120 days from the date of this letter to file a Form 8832 with the appropriate service center to elect to be classified as a disregarded entity for federal tax purposes, effective D1 and D2, respectively. A copy of this letter should be attached to each Form 8832.

Except as specifically set forth above, no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the Internal Revenue Code and the regulations thereunder.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Internal Revenue 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.
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The ruling contained in this letter is based upon information and representations submitted by the taxpayer and ac-companied 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/
Stacy L. Short, Senior Technician Reviewer Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes