Foreign entity receives late disregarded status election

Plain-English summary

A foreign eligible entity intended to elect disregarded-entity treatment from its formation date but inadvertently failed to file Form 8832 on time. Its ownership changed among related foreign entities during the covered period. The IRS found that the requirements for discretionary relief under section 301.9100-3 were satisfied. It granted 120 days to file Form 8832 with the requested effective date. The relief is contingent on the entity and the related owners filing all required tax and information returns for the covered period consistently with disregarded-entity treatment.

Ruling snapshot

• Question: May the foreign eligible entity make a late election for disregarded-entity treatment effective from its formation date?
• Outcome: Yes, with 120 days to file Form 8832 and all related 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: 201607020                                              Third Party Communication: None
Release Date: 2/12/2016                                        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-118429-15
                                                               Date:
                                                               October 29, 2015


LEGEND

X                 =         --------------------------------------------
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Y                 =         -----------------------------------------
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Z                 =         ---------------------------------------------
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A                 =         ---------------------------
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B                 =         --------------------------
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Country           =        -----------------------------------------------------------------------------------------

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

Date 2            =        ----------------------

Date 3            =        ----------------------

Period            =        ----------------------------------------------------------

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

      This responds to a letter dated May 20, 2015, and subsequent correspondence,
submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the

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Procedure and Administration Regulations to file an election under § 301.7701-3(c) to
be treated as disregarded entity for federal tax purposes.

FACTS

       According to the information submitted, X was formed under the laws of Country
on Date 1. X intended to elect to be treated as disregarded entity for federal tax
purposes effective Date 1. However, X inadvertently failed to timely file Form 8832,
Entity Classification Election.

      On Date 1, X was a wholly owned subsidiary of Y. Y is indirectly owned by A and
B. As of Date 2, X was wholly owned by Z. Z is owned by A and B. As of Date 3, X
was wholly and indirectly owned by Y.

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. 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.

        Section 301.7701-3(c)(1) provides that an entity classification election, or change
in entity classification, 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 301.7701-3(c)(1)(iv) states, in part, if an eligible entity makes an election
to change its classification, the entity cannot change its classification by election again
during the sixty months succeeding the effective date of the election. An election by a
newly formed eligible entity that is effective on the date of formation is not considered a
change for purposes of this paragraph (c)(1)(iv).

        Section 301.7701-3(c)(2)(i) provides that such an election must be signed by
either (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 organization documents) to make the election and who
represents to having such authorization under penalties of perjury.

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       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 information submitted and the representations made, we
conclude that the requirements of § 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,
Entity Classification Election, 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. A copy is enclosed for that purpose.

        This ruling is contingent on X, Y, Z, A and B filing within 120 days from the date
of this letter all income tax or information returns that would have been required to be
filed under the Internal Revenue Code for any taxable year within Period consistent with
the requested relief being effective Date 1. 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. Further, we express no opinion concerning the assessment of
any interest, additions to tax, additional amounts, or penalties with respect to any
taxable year within Period.

      This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

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       Pursuant to a 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)


                                        David R. Haglund
                                    By: David R. Haglund
                                    Branch Chief, Branch 1
                                    Office of the Associate Chief Counsel
                                    (Passthroughs & Special Industries)


Enclosures (2)

       Copy of this letter
       Copy of this letter for section 6110 purposes