Foreign entity gets late partnership-classification election

Plain-English summary

A foreign eligible entity and its two members intended partnership classification from the entity's formation date but inadvertently failed to file Form 8832. The IRS found that the entity met the standards for discretionary election relief and granted 120 days to file a retroactive partnership-classification election. Relief was conditioned on both members filing all required original and amended returns consistently with partnership treatment, including Forms 8865 where appropriate, within the same 120-day period. The ruling did not determine whether the entity was otherwise eligible to make the election.

Ruling snapshot

• Question: Should the foreign entity receive an extension to elect partnership classification retroactive to its formation date?
• Outcome: Approved, subject to consistent-return conditions
• 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: 201442039
Third Party Communication: None
Release Date: 10/17/2014
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
Person To Contact:
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Telephone Number:
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------------------------------------------------ Refer Reply To:
CC:PSI:B03
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Date:
June 3, 2014

LEGEND

Company = ---------------------------------------------------

X = ------------------------------------------------------------------------------------------------
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Y = ------------------------------------------------------------------------------------------------
--------------------------

Country = ---------

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

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

This letter responds to a letter dated December 3, 2013, and subsequent correspondence, submitted on behalf of Company by its authorized representative, requesting that Company be granted an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to elect to be treated as a partnership under § 301.7701-3.

FACTS

Company was formed under the laws of Country on Date. Company represents that it is a foreign entity eligible to elect to be classified as a partnership for federal tax purposes. Company and Company’s members, X and Y, intended that Company be classified as a partnership effective Date. However, due to inadvertence, Form 8832, Entity Classification Election, was not timely filed.
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LAW

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 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 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 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 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.

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
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elections. Section 301.9100-3 provides extensions of time for making 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 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, Company 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 partnership effective Date. A copy of this letter should be attached to the Form 8832.

This ruling is contingent on X and Y filing within 120 days of this letter all required returns and amended income tax returns consistent with the requested relief. To the extent appropriate, these returns must include, but are not limited to, Forms 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships, such that these forms reflect the consequences of the relief granted in this letter.

Except as expressly provided herein, we express or imply no opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In addition, § 301.9100-1(a) provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election.

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.
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The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied 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 and Special Industries)

By:__/s/_____
Mary Beth Carchia
Senior Technician Reviewer, Branch 3
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: