Foreign entity gets late disregarded classification election relief

Plain-English summary

A foreign entity with one owner was eligible to elect disregarded-entity status but did not timely file Form 8832 for its intended effective date. The owner had consistently filed personal U.S. tax returns intending to treat the entity as disregarded, and the entity represented that relief would not use hindsight or reduce aggregate tax liability. The IRS found the regulatory-extension requirements satisfied and granted 120 days to file Form 8832. Relief was conditioned on the owner filing all required returns for open years consistently with the election, including any required Forms 5471, 8865, or 8858.

Ruling snapshot

• Question: May the foreign single-owner entity make a late election to be disregarded for federal tax purposes?
• Outcome: Approved, conditioned on consistent filings for all open years
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201442012 Third Party Communication: None
Release Date: 10/17/2014 Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
9100.31-00 Person To Contact:
----------------, ID No. ------------
------------------------------ Telephone Number:
-------------------------------------- --------------------
-------------------------------------- Refer Reply To:
------------------------------ CC:PSI:B01
PLR-106679-14
Date:
June 27, 2014

LEGEND

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

Y = ---------------------

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

Date 1 = ----------------------

Date 2 = ---------------------------

Year 1 = ------

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

This letter responds to your request for a written determination, dated February 11,
2014, submitted on behalf of X, seeking a ruling that X be granted an extension of time
pursuant to § 301.9100 of the Procedure and Administration Regulations to file an
election under § 301.7701 to be treated as a disregarded entity for federal tax purposes.

                                                 FACTS

According to the information submitted, we understand the relevant facts to be as
follows. X was formed under the laws of Country on Date 1. Y is the sole shareholder of
X. X represents that, as of Date 2, it was a foreign entity eligible to elect to be
disregarded as an entity separate from its owner. However, X failed to timely file a Form
8832, Entity Classification Election, electing to treat X as a disregarded entity for federal
tax purposes effective Date 2.
PLR-106679-14 2

X represents that Y has consistently filed personal U.S. tax returns with the intent to
treat X as a disregarded entity. X also represents that granting relief will not prejudice
the interests of the government and that hindsight is not involved in seeking relief to file
a late election. X further represents that such relief will not lower X’s aggregate tax
liability for the tax years affected by the election. Finally, X represents that it acted
reasonably and in good faith.

                               LAW AND ANALYSIS

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. An eligible entity with at least two
members can elect to be classified as either an association 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) provides guidance on the classification of a foreign eligible
entity for federal tax purposes. Generally, a foreign eligible entity is treated as an
association if all members have limited liability, unless the entity makes an election to
be treated otherwise. A foreign eligible entity with a single member having limited
liability may elect to be treated as a disregarded entity pursuant to the rules of §
301.7701-3(c).

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) by filing Form 8832, Entity Classification
Election, with the appropriate campus. 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.

Section 301.7701-3(g)(1)(iii) provides that if an eligible entity classified as an
association elects to be disregarded as an entity separate from its owner, the following
is deemed to occur: The association distributes all of its assets and liabilities to its single
owner in liquidation of the association.

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) defines
the term “regulatory election” as an election whose due date is prescribed by a
regulation published in the Federal Register or a revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin.
PLR-106679-14 3

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 extensions 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 regulatory elections that do not
meet the requirements of § 301.9100-2.

Under § 301.9100-3, a request for relief will be granted when the taxpayer provides
evidence to establish to the satisfaction of the Commissioner that (1) the taxpayer acted
reasonably and in good faith, and (2) granting relief will not prejudice the interests of the
government.

                                  CONCLUSION

Based solely on the facts submitted and the representations made, we conclude that
the requirements of § 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 to elect to be treated as a disregarded entity for federal tax
purposes effective Date 2. A copy of this letter should be attached to the Form 8832. A
copy is enclosed for that purpose.

This ruling is contingent on the owner of X filing within 120 days of this letter all required
returns for all open years consistent with the requested relief. These returns may
include, but are not limited to, the following forms: (i) Forms 5471, Information
Return of U.S. Persons With Respect to Certain Foreign Corporations, (ii) Forms 8865,
Return of U.S. Persons With Respect to Certain Foreign Partnerships, and (iii) Forms
8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities,
such that these forms reflect the consequences of the relief granted in this letter. A copy
of this letter should be attached to any such returns.

Except as specifically set forth above, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.
PLR-106679-14 4

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your taxpayer representative.

                                               Sincerely,



                                               Laura C. Fields
                                               Laura C. Fields
                                               Senior Technician Reviewer, Branch 1
                                               Office of the Associate Chief Counsel
                                               (Passthroughs & Special Industries)

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

cc: