PLR 1348002: IRS grants a foreign entity more time to elect disregarded-entity status

Plain-English summary

A foreign entity wholly owned by one person was eligible to elect to be treated as a disregarded entity for federal tax purposes, but it did not file the entity classification election on time. The IRS found that the requirements for late-election relief were satisfied and granted 120 additional days to file Form 8832, effective on the specified date. The ruling does not address other federal tax consequences of the entity's facts.

Ruling snapshot

• Question: Could the foreign single-owner entity receive more time to file Form 8832 and elect disregarded-entity status?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-2, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                           Department of the Treasury
                                                   Washington, DC 20224

Number: 201348002                                  Third Party Communication: None
Release Date: 11/29/2013                           Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,              Person To Contact:
              9100.31-00                           ------------------------, ID No. ---------------
                                                   Telephone Number:
------------------------------                     ---------------------
----------------------------                       Refer Reply To:
----------------------------------------           CC:PSI:B02
----------------------------                       PLR-104541-13
                                                   Date:
-----------------------------
                                                   July 29, 2013




Legend

X            = ----------------------------
-------------------------------------------

A            = ----------------
--------------------------------------------

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

Date         = ----------------------


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

        This letter responds to a letter dated January 18, 2013, and subsequent
correspondence submitted on behalf of X, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations for X to file an entity
classification election.

        The information submitted states that X was formed under the laws of Country on
Date. X has been wholly owned by A since Date. X represents that it is a foreign entity
that was eligible to elect to be treated as a disregarded entity for federal tax purposes,
effective on Date. However, no entity classification election was filed for X at that time.

        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-104541-13                                  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 301.7701-3(c)(1)(iv) provides that if an eligible entity makes an election
under § 301.7701-3(c)(1)(i) to change its classification (other than an election made by
an existing entity to change its classification as of the effective date of this section), the
entity cannot change its classification by election again during the sixty months
succeeding the effective date of the election. However, the Commissioner may permit
the entity to change its classification by election within the sixty months if more than fifty
percent of the ownership interests in the entity as of the effective date of the subsequent
election are owned by persons that did not own any interests in the entity on the filing
date or on the effective date of the entity’s prior election.

       Section 301.7701-3(c)(2)(i) provides, in general, that an election made under
§ 301.7701-3(c)(1)(i) must be signed by (A) each member of the electing entity who is
an owner at the time the election is filed; or (B) any officer, manager, or member of the
electing entity who is authorized (under local law or the entity’s organizational
documents) to make the election and who represents to having such authorization
under penalties of perjury.

         Section 301.7701-3(c)(2)(iii) provides that, for purposes of § 301.7701-3(c)(2)(i),
if an election under § 301.7701-3(c)(1)(i) is made to change the classification of an
entity, each person who was an owner on the date that any transactions under
§ 301.7701-3(g) are deemed to occur, and who is not an owner at the time the election
is filed, must also sign the election.

       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
PLR-104541-13                                  3

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 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 information submitted and the representations made, we
conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
As a result, X is granted an extension of time of 120 days from the date of this letter to
file a Form 8832 with the appropriate service center and elect to be treated as a
disregarded entity for federal tax purposes, effective Date. A copy of this letter should
be attached to the Form 8832. A copy is enclosed for that purpose.

       Except as specifically set forth above, no opinion is expressed 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 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 X’s authorized representative.

                                        Sincerely,


                                        Associate Chief Counsel
                                        (Passthroughs & Special Industries


                                    By: __________________________
                                       Bradford R. Poston
                                       Senior Counsel, Branch 2
                                       Office of Associate Chief Counsel
                                       (Passthroughs & Special Industries)


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


cc: