Foreign entity receives 120 days for partnership status

Plain-English summary

A foreign entity with two owners intended from formation to be treated as a partnership for U.S. federal tax purposes. The owners consistently filed returns on that basis, but the entity had not been advised that it needed to file Form 8832. The entity represented that the late election would not use hindsight, reduce aggregate tax liability, or prejudice the government. The IRS found that the entity acted reasonably and in good faith and granted 120 days to file Form 8832 effective as of its formation date. The relief was conditioned on the owners filing all required consistent returns for open years, including Form 8865 where appropriate.

Ruling snapshot

• Question: Could the foreign entity file a late Form 8832 election to be treated as a partnership from its formation date?
• Outcome: Approved
• 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

Number: 201545006 Third Party Communication: None
Release Date: 11/6/2015 Date of Communication: Not Applicable
Index Number: 7701.01-00, 9100.31-00
Person To Contact:
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------------------------------------------------- Telephone Number:
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Refer Reply To:
CC:PSI:01
PLR-106228-15
Date:
June 17, 2015

Legend
X = -----------------------------------------------------------------------------------------------------
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Y = -----------------------------------------------------------------------------------------------------
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Z = ----------------------------
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ry
Date = -----------------------
1

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

  This letter responds to a letter dated January 30, 2015, 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 and Z own all of the outstanding interests in X. X represents that, as of Date
1, it was a foreign entity eligible to elect to be a partnership for U.S. federal tax
purposes and at all times Y and Z intended X to be treated as a partnership. X
represents that it was not advised of the need to make an election for U.S. federal
income tax purposes to be treated as a partnership. As a result, X failed to timely file a
Form 8832, Entity Classification Election, electing to be treated as a partnership for U.S.
federal tax purposes effective Date 1.
PLR-106228-15 2

     X represents that Y and Z consistently filed U.S. tax returns treating X as a

partnership. 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 would not result in a lower tax liability in the aggregate
for all years to which the request applies, as the owners of X properly reported the net
income of X on their respective returns. Finally X represents that it acted reasonably
and in good faith.

                               LAW AND ANALYSIS

    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 301.9100-1(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
PLR-106228-15 3

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

                                   CONCLUSION

    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
partnership for federal tax purposes effective Date 1. A copy of this letter is attached 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. To the extent
appropriate these returns must include, but are not limited to Form 8865, Information
Return of U.S. Persons With Respect to Certain Foreign Partnerships, such that the
forms and returns 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 Letter
PLR-106228-15 4

Copy for 6110 purposes