Foreign subsidiary gets late disregarded-entity election relief

Plain-English summary

A domestic corporation's wholly owned foreign subsidiary intended to elect disregarded-entity status from a specified date but failed to file a valid Form 8832 on time. The foreign subsidiary requested an extension under the regulatory election-relief rules. Based on the submitted facts and representations, the IRS found that the relief requirements were satisfied and granted 120 days to file the election for the intended effective date. The relief was conditioned on the domestic parent filing all required original and amended returns for open years within the same 120-day period. Those filings could include Forms 5471 and 8858 and had to reflect the consequences of the granted relief.

Ruling snapshot

• Question: Could a wholly owned foreign subsidiary file a late election to be disregarded for federal tax purposes?
• Outcome: Approved, with a 120-day filing period and related-return conditions
• 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: 201501004 Third Party Communication: None
Release Date: 1/2/2015 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-112771-14
Date:
August 20, 2014

Legend

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

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

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

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

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

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

This ruling is in response to your request dated March 10, 2014, submitted on behalf of
Y, requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to elect to be treated as a disregarded entity for federal
income tax purposes.

                                                    Facts

According to the information submitted, X is a domestic corporation. On Date 1, X’s
wholly owned foreign subsidiary, Y, formed under the laws of Country. Y represents that
it intended to elect to be treated as a disregarded entity effective Date 2. However, Y
failed to timely file a valid Form 8832, Entity Classification Election, to elect to be treated
as a disregarded entity for federal tax purposes.

                                          Law and Analysis

PLR-112771-14 2

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 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) provides that an entity classification election 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 301.9100-1(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) 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, Y 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 X filing, within 120 days of the date of this letter, all required
returns and amended returns for all open years consistent with the requested relief.
PLR-112771-14 3

These returns may include, but are not limited to, the following forms: (i) Form 5471,
Information Return of U.S. Persons With Respect to Certain Foreign Corporations, and
(ii) Form 8858, Information Return of U.S. Persons With Respect to 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.

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,




                                               Associate Chief Counsel
                                               (Passthroughs & Special Industries)



                                                   Joy C. Spies
                                               By: Joy C. Spies
                                               Senior Technician Reviewer, Branch 1
                                               Office of Associate Chief Counsel
                                               (Passthroughs & Special Industries)

Enclosures (2):

Copy of this letter
Copy for § 6110 purposes