Foreign acquisition entity receives late disregarded-status election

Plain-English summary

A foreign entity was formed to acquire another business within a corporate chain ultimately owned by the parent of a U.S. consolidated group. It and two related foreign entities intended to be treated as disregarded from specified effective dates but did not timely file Forms 8832. They represented that all U.S. tax and information returns had consistently used disregarded-entity treatment from those dates. The IRS found that the acquisition entity satisfied the standards for late-election relief and granted 120 days to file Form 8832 with a copy of the ruling attached. The IRS did not determine that the entity was otherwise eligible to make the classification election.

Ruling snapshot

• Question: Could the foreign acquisition entity make a late election to be disregarded as separate from its owner?
• Outcome: Approved, with 120 days to file Form 8832
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201507009
Release Date: 2/13/2015
Index Numbers: 7701.00-00, 9100.31-00

--------------------------------------------- Person To Contact:
------------------------------------------------- -----------------------, ID No. -------------------
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------------------------------------ Telephone Number:
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Refer Reply To:
CC:PSI:B03 – PLR-124056-14
Date: October 7, 2014

                                                 LEGEND

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

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

Z = --------------------------------------

Country 1 = ----------------------------

Country 2 = -------------

Sub1 = ----------------------------------------------------------------

Sub2 = --------------------------------------------------------

State = --------------

Parent = -------------------------------
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
---------

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PLR-124056-14

Entity = --------------------

Limited = ------------

D1 = --------------------

D2 = -------------------

D3 = ------------------------

D4 = -----------------------

D5 = -----------------------

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

  This letter responds to a letter dated June 16, 2014, submitted on behalf of Y

requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to file an election under § 301.7701-3 to be classified as a
disregarded entity for federal tax purposes.

                                          FACTS

  The information submitted discloses that Sub1 formed X on D1, under the laws of

Country 1. Sub1 is owned by Sub2, a State corporation, whose ultimate owner is
Parent, also a State corporation and the parent of an affiliated group that files a U.S.
consolidated return.

   On D2, X formed Y under the laws of Country 2 to use for the acquisition of

Entity. After the acquisition, Y and Entity merged on D3, and the surviving Entity was
converted to a Limited and renamed Z. X, Y, and Z each intended to be classified as a
disregarded entity for federal tax purposes effective D4, D5, and D3, respectively.
However, X, Y, and Z each failed to file timely a Form 8832, Entity Classification
Election, to be classified as a disregarded entity for federal tax purposes. X, Y, and Z
represent that all U.S. tax and information returns have been filed consistent with X, Y,
and Z being treated as disregarded entities effective D4, D5, and D3, respectively.

                                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 as provided in

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§ 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, in part, 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, except as provided in

§ 301.7701-3(c)(1)(iv) and (v), 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
elections. Section 301.9100-3 provides extensions of time for 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.

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                                  CONCLUSION

    Based solely on the facts and representations submitted, Y has established that

the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied. Consequently, Y is
granted an extension of time of one hundred twenty (120) days from the date of this
letter to elect under § 301.7701-3 to be treated as a disregarded entity effective D5. Y
must file Form 8832 within the extension period with the appropriate service center, with
a copy of this letter attached.

   Except for the specific ruling above, we express or imply no opinion concerning

the federal tax consequences of the facts of this case under any other provision of the
Code. 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. According to

§ 6110(k)(3) of the Code, this ruling may not be used or cited as precedent.

    Under a power of attorney on file with this office, we are sending a copy of this

letter to Y’s authorized representative.

   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 & Special Industries)


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

Enclosures: Copy of this letter
Copy for § 6110 purposes