Foreign entity receives more time to elect partnership status

Plain-English summary

A foreign eligible entity with multiple owners intended to change its federal tax classification to a partnership but did not timely file Form 8832. It represented that it had no valuable assets or income before the intended effective date, acted reasonably and in good faith, and had no affected years closed by the assessment limitations period. The IRS concluded that granting retroactive relief would not prejudice the government and that the entity satisfied Treas. Reg. § 301.9100-3. It granted 120 days to file Form 8832 electing partnership status as of the requested date. The owners also had to file all required open-year returns consistently with the relief, potentially including Forms 5471, 8865, and 8858.

Ruling snapshot

• Question: Could the foreign eligible entity file a late Form 8832 election for retroactive partnership status?
• Outcome: Approved
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201452003 Third Party Communication: None
Release Date: 12/26/2014 Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
Person To Contact:
------------------------------------------- ---------------, ID No. ----------------
---------------------- Telephone Number:
-------------------------------------- --------------------
------------------------------- Refer Reply To:
CC:PSI:B01
PLR-114643-14
Date:
September 11, 2014

LEGEND

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

Country = ---------

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

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

Period = ----------------------

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

B = ----------------------

C = ----------------------------

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

   This responds to a letter dated March 14, 2014 and subsequent correspondence,

submitted on behalf of X, 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
be treated as a partnership for federal tax purposes.

FACTS

PLR-114643-14 2

  According to the information submitted, X was formed under the laws of Country

by A and B on Date 1. C became a shareholder of X as of Period.

   X represents that it is a foreign eligible entity eligible to elect to be a partnership

for federal tax purposes. X represents that prior to Date 2, X did not own assets with
any value or generate income. X intended to elect to change its classification to a
partnership for federal tax purposes effective Date 2. However, X inadvertently failed to
timely file Form 8832, Entity Classification Election.

   X represents that it acted in good faith and reasonably. X represents that the

interests of the government will not be prejudiced. Lastly, X represents that the tax
years that would be affected by the election are not closed by the period of limitations
on assessments under section 6501(a).

LAW AND ANALYSIS

    Section 301.7701-3(a) provides in part 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.

    Section 301.7701-3(c)(1) provides that an entity classification election, or change

in entity classification, must be filed on Form 8832 and can be effective up to 75 days
prior to the date the form is filed or up to 12 months after the date the form is filed.

   Section 301.7701-3(c)(1)(iv) states, in part, if an eligible entity makes an election

to change its classification, the entity cannot change its classification by election again
during the sixty months succeeding the effective date of the election. An election by a
newly formed eligible entity that is effective on the date of formation is not considered a
change for purposes of this paragraph (c)(1)(iv).

    Section 301.7701-3(c)(2)(i) provides that such an election must be signed by

either (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 organization documents) to make the election and who
represents to having such authorization under penalties of perjury. Section 301.7701-

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3(c)(2)(iii) provides, in part, if an election is made to change the classification of an
entity, each person who was an owner on the date that any transactions under section
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) 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.

    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) the granting 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 § 301.9100-3 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 partnership 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 owners 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

PLR-114643-14 4

referenced in this letter.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)

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)


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

Enclosures (2)

   Copy of this letter
   Copy of this letter for section 6110 purposes

cc: