Foreign entity receives late disregarded-entity election relief

Plain-English summary

A single-owner foreign eligible entity failed to timely file Form 8832 for disregarded-entity treatment. Its owner had consistently filed personal U.S. tax returns intending that treatment, and the entity represented that relief would not reduce its aggregate tax liability or prejudice the government. The IRS granted 120 days to file the late election and required the owner to file all required returns for open years consistently with the relief. The letter's opening sentence refers to a partnership election, but its facts, analysis, and conclusion address an election for disregarded-entity status.

Ruling snapshot

• Question: May the foreign entity file a late Form 8832 electing disregarded-entity status?
• Outcome: Approved, with a 120-day filing period and consistent-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: 201527020 Third Party Communication: None
Release Date: 7/2/2015 Date of Communication: Not Applicable
Index Number: 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:01
PLR-138150-14
Date:
March 11, 2015

Legend
X = -----------------------------------------------------------------------------------------
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Y = -----------------------------------------------------------------------------------------
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Country = -------------
Date 1 = ---------------------------
Date 2 = ----------------------

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

  This letter responds to a letter dated September 5, 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

    The information submitted states that X was formed under the laws of Country on

Date 1. Y is the sole member 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. X represents that Y
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 tax years
affected by the election. Finally X represents that it acted reasonably and in good faith.

                                       LAW AND ANALYSIS

PLR-138150-14 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 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)(2) by filing Form 8832 with the
appropriate service center. 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 and no more than 12 months after the date 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) provides
that the term “regulatory election” includes 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 extension 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 the
regulatory elections that do not meet the requirements of § 301.9100-2. Under
§ 301.9100-3, a request for relief will be granted when a taxpayer provides evidence to
establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonable

PLR-138150-14 3

and in good faith, and (2) granting relief will not prejudice the interests of the
government.

                                  CONCLUSIONS

    Based solely on the facts submitted and representations made, we conclude that

X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Accordingly, X is
granted an extension of time of one hundred twenty (120) days from the date of this
letter to file 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 is
attached 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, and (ii) 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 expressly set forth herein, no opinion is expressed or implied

concerning the federal tax consequences any aspect of any transaction or item
discussed or referenced in this letter. 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. Pursuant to a power of attorney on file with this office, a copy of this
letter is being sent to X’s authorized representatives.

                                    Sincerely,

                                    Associate Chief Counsel
                                    (Passthroughs & Special Industries)


                                By: David R. Haglund
                                    David R. Haglund
                                    Branch Chief, Branch 1
                                    (Passthroughs & Special Industries)

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