PLR 1338041: 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.
PLR-154377-12 2

   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
PLR-154377-12 3

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: