PLR 201338041: IRS grants late election relief for foreign entity classification

Plain-English summary

A foreign eligible entity was treated by default as an association taxable as a corporation, but it intended to be classified as a disregarded entity for federal tax purposes. The entity failed to timely file Form 8832 to make that election. The IRS found that the requirements for relief under Treas. Reg. § 301.9100-3 were satisfied and granted a 120-day extension to make the election effective on the requested date. The relief was conditioned on filing the required returns and amended returns consistent with the ruling.

Ruling snapshot

• Question: Could the foreign eligible entity receive more time to elect disregarded-entity classification under Treas. Reg. § 301.9100-3?
• Outcome: Approved. The IRS granted 120 days to file Form 8832 and make the election effective on Date 1.
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-2, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201338041
Third Party Communication: None
Release Date: 9/20/2013
Date of Communication: Not Applicable
Index Number: 7701.02-00, 9100.31-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:02
PLR-154377-12
Date:
June 04, 2013

Legend
X = -------------------------------------------------------------------------------------------------
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Y = ---------------------------------
Country = ------
Date 1 = --------------------------

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

This letter responds to a letter dated December 18, 2012, and subsequent correspondence, submitted on behalf of Y, by Y’s authorized representative, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election under § 301.7701-3(c) to treat Y as a disregarded entity for federal tax purposes.

The information submitted states that X, a corporation for U.S. tax purposes, through its subsidiaries formed Y under the laws of Country on Date 1. Y is a foreign entity eligible to be treated as a disregarded entity for U.S. income tax purposes. Y’s default classification is an association taxable as a corporation. Y represents that it intended to elect to be treated as a disregarded entity for federal tax purposes effective Date 1. However, Y inadvertently failed to timely file a Form 8832, electing to treat it as a disregarded entity effective Date 1.

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. Elections are necessary only when an eligible entity does not want to be classified under the default classification or when an eligible entity chooses to change its classification.
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Section 301.7701-3(b) provides default classification for an eligible entity that does not make an election. Section 301.7701-3(b)(2)(i) provides that, unless the entity elects otherwise, a foreign eligible entity is (A) a partnership if it has two 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(c)(1)(i) provides that an eligible entity may elect to be classified other than as provided under § 301.7701-3(b)(2) by filing Form 8832 with the appropriate service center. Under § 301.7701-3(c)(1)(iii), this election will be effective on the date specified by the entity on Form 8832 or on the date filed if no such date is specified. The date specified on Form 8832 cannot be more than 75 days prior to the date on which the election is filed and no more than 12 months after the date the election is filed.

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 6 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) 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 the election. Section 301.9100-2 provides the rules governing automatic extension of time for making certain elections. Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for the regulatory elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will be granted when a taxpayer provides evidence to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonable and in good faith, and (2) granting relief will not prejudice the interests of the government.

Based solely on the facts submitted and representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Accordingly, Y is granted an extension of 120 days from the date of this letter to elect to be classified as a disregarded entity for federal tax purposes, effective Date 1. The election should be made by filing Form 8832 with the appropriate service center and a copy of this letter should be attached to the election.

This ruling is contingent on Y filing within 120 days of this letter all required returns and amended income tax returns consistent with the requested relief in this letter. To the extent appropriate these returns must include, but are not limited to Form 8858, Information Return of U.S. Persons With Respect to Disregarded Entities, such
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that the forms and returns reflect the consequences of the relief granted in this letter. A copy of this letter should be attached to any such returns.

Except as expressly set forth herein, no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the Code. 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. Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: _______
Melissa C. Liquerman
Branch Chief, Branch 2
(Passthroughs & Special Industries)

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

cc: