Foreign subsidiary receives late disregarded-status election

Plain-English summary

A domestic limited liability company treated as a partnership wholly owned a foreign subsidiary. The subsidiary intended to elect disregarded-entity status from its formation date but failed to file a valid Form 8832 on time. The IRS found that the subsidiary satisfied the regulatory-election relief standards under Treas. Reg. § 301.9100-3. It granted 120 days to make the election. The relief was contingent on the owner filing all required returns for open years consistently with the election, potentially including Forms 5471 and 8858.

Ruling snapshot

• Question: Should the foreign subsidiary receive more time to elect disregarded-entity status 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: 201549012 Third Party Communication: None
Release Date: 12/4/2015 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-106682-15
Date:
August 13, 2015

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

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

Country = ------

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

Dear ---------------

This ruling is in response to your request dated January 30, 2015, 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 limited liability company treated
as a partnership for federal income tax purposes. On Date 1, X's wholly owned foreign
subsidiary, Y, was formed under the laws of Country. Y represents that it intended to
elect to be treated as a disregarded entity effective Date 1. 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.
PLR-106682-15 2

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 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 1. A copy of this letter should be attached to the Form 8832.
PLR-106682-15 3

This ruling is contingent on the owner of Y 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 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.

Pursuant to a power of attorney on file with this office, we are sending a copy of this
letter to Y’s authorized representatives.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)



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

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