Foreign entity receives late partnership election relief

Plain-English summary

A foreign eligible entity intended to be treated as a partnership beginning when U.S. persons became its direct and indirect owners, but it did not timely file Form 8832. The IRS concluded that the entity satisfied the requirements for discretionary late-election relief under section 301.9100-3. It granted 120 days to file the partnership classification election with the requested effective date. The relief is contingent on the entity and its owners filing all required federal tax and information returns consistently with partnership treatment, including any appropriate Form 8865.

Ruling snapshot

• Question: May the foreign entity make a late election to be classified as a partnership?
• Outcome: Yes, with 120 days to file Form 8832 and all required consistent returns.
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201607002
Release Date: 2/12/2016
Index Numbers: 7701.00-00, 9100.31-00

----------------------------------------------- --             Person To Contact:
---------------------------------                              ----------------------, ID No. -----------------
 ----------------------------------                            Telephone Number:
 ----------------------------                                  ---------------------
                                                               Refer Reply To:
                                                               CC:PSI:B03 – PLR-115962-15
                                                               Date: October 6, 2015




                                                     LEGEND

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

Country           =        --------

Owners            =         --------------------------------------
-------------------------------------------------

---------------------------------------------------------------------
-------------------------------------------------

---------------------------------------------------------
-------------------------------------------------

---------------------------------------------------------------------------
-------------------------------------------------

------------------------------------------------------------------------
-------------------------------------------------

----------------------------------------------------------------
-------------------------------------------------

------------------------------------------------------------------------------
-------------------------------------------------
                                                         2
PLR-115962-15

---------------------------------------------------------------------------------
-------------------------------------------------

-----------------------------------------------------------------------------
-------------------------------------------------

---------------------------------------------------------------------------------
-------------------------------------------------

-----------------------------------------------------------------------------------
-------------------------------------------------

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

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


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

      This letter responds to a letter dated May 7, 2015, 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 to be classified as a
partnership for federal tax purposes.

                                                       FACTS

       The information submitted discloses that X was formed on D1 under the laws of
Country. Beginning on and after D2, U.S. persons, including Owners, became direct
and indirect owners of X, which intended to be treated as a partnership for federal tax
purposes effective D2. However, X failed to timely file Form 8832, Entity Classification
Election, to be classified as a partnership for federal tax purposes.

                                           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
§ 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.
                                               3
PLR-115962-15

         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.

       Section 301.7701-3(g)(1)(iii) provides that if an eligible entity classified as an
association elects under § 301.7701-3(c)(1)(i) 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
301.7701-3(g)(3)(i) provides that an election under § 301.7701-3(c)(1)(i) that changes
the classification of an eligible entity for federal tax purposes is treated as occurring at
the start of the day for which the election is effective. Any transactions that are deemed
to occur under § 301.9100-3(g) as a result of a change in classification are treated as
occurring immediately before the close of the day before the election is effective.

       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.
                                             4
PLR-115962-15

       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.

                                      CONCLUSION

        Based solely on the facts and representations submitted, we conclude that X has
satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Consequently, X 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 partnership effective D2. X must
file Form 8832 within the extension period with the appropriate service center, with a
copy of this letter attached.

        This ruling is contingent on X and its owners filing within 120 days from the date
of this letter all required federal income tax and informational 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 8865, Return
of U.S. Persons With Respect to Certain Foreign Partnerships. A copy of this letter
should be attached to any such returns.

       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 X’s authorized representatives.
                                            5
PLR-115962-15

       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/_________________________
                                            Holly Porter
                                            Chief, Branch 3
                                            Office of the Associate Chief Counsel
                                            (Passthroughs & Special Industries)



Enclosures: Copy of this letter
            Copy for § 6110 purposes