Late disregarded-entity election granted

Plain-English summary

A foreign eligible entity was formed for a trust and had one owner. The entity, the trust, and the trust's grantor intended from formation to treat the entity as disregarded for federal tax purposes and consistently did so, but no timely classification election was filed. The IRS found that the regulatory-relief requirements were satisfied and granted 120 days to file Form 8832 with disregarded-entity treatment effective from the formation date. The relief was conditioned on the entity and its owners timely filing all required returns, including amended or information returns where appropriate, consistently with that treatment.

Ruling snapshot

• Question: May the foreign eligible entity make a late election to be treated as disregarded from its formation date?
• Outcome: Approved, with 120 days to file Form 8832 and consistent required returns
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

                                                          Third Party Communication: None

Number: 201535015 Date of Communication: Not Applicable
Release Date: 8/28/2015
Person To Contact:
Index Number: 7701.00-00, 9100.00-00, -----------------------, ID No. ----------------
9100.31-00 Telephone Number:
--------------------
------------------------------------------ Refer Reply To:

-------------------------------------------- CC:PSI:B03
--------------------------------- PLR-144634-14
Date:
-------------------------------------------- May 12, 2015

Legend

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

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

Trust = ---------------------------------------------------------------------------

Country1 = -----------------

Country2 = ------------------------

Date1 = ----------------

Date2 = ------------------------

Date3 = ------------------

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

This letter responds to a letter dated December 4, 2014, and subsequent
correspondence submitted on behalf of X, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations for X to file an entity
classification election.

PLR-144634-14 2

The information submitted states that Trust was formed on Date1 by A, and is
administered under the laws of Country1. At the request of A, the trustee of Trust
caused the formation of X under the laws of Country2 on Date2. X has been wholly
owned by Trust since Date2. Trust had been treated as a wholly-owned grantor trust
with respect to A for federal income tax purposes until A’s death on Date3. X
represents that it is a foreign entity that is eligible to elect to be treated as a disregarded
entity for federal tax purposes, and that A, Trust, and X had always intended that X be
classified as a disregarded entity effective beginning Date2. X further represents that A,
Trust, and X consistently treated X as a disregarded entity since Date2. However, no
entity classification election was timely filed for X to be treated as a disregarded entity
for federal tax purposes.

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. Elections are necessary only when an
eligible entity does not want to be classified under the default classification or when an
eligible entity chooses to change its classification.

Section 301.7701-3(b) provides the default classification for an eligible entity that
does not make an election. Section 301.7701-3(b)(2)(i) provides that, 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(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(c)(2)(i) provides, in general, that an election made under
§ 301.7701-3(c)(1)(i) must be signed by (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 organizational
documents) to make the election and who represents to having such authorization
under penalties of perjury.

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

PLR-144634-14 3

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

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, 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 and elect to be treated as a
disregarded entity for federal tax purposes, effective Date2. 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 and its owners filing within 120 days from the date
of this letter, to the extent necessary or appropriate, all required federal income tax
returns and information returns (including amended returns) consistent with the
requested relief granted in this letter. To the extent appropriate, these returns may
include, but are not limited to, Form 8858, Information Return of U.S. Persons With
Respect to Foreign Disregarded Entities. A copy of this letter should be attached to any
such returns.

Except as specifically set forth above, no opinion is expressed concerning the
federal tax consequences of the facts described above under any other provision of the
Internal Revenue Code and the regulations thereunder. 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.

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.

PLR-144634-14 4

In accordance with the 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

By: ________
Holly Porter
Branch Chief, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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