Foreign insurer receives more time for two tax elections

Plain-English summary

A foreign property and casualty insurer intended to elect domestic-corporation treatment under section 953(d) and the small-insurance-company tax regime under section 831(b), but its manager did not file the elections. The insurer requested relief before the IRS discovered the omissions and represented that it was not using hindsight or seeking a lower aggregate tax liability. The IRS found that it acted reasonably and in good faith and that relief would not prejudice the government. It granted 90 days to make both elections effective for the requested year, without deciding whether the insurer otherwise qualified.

Ruling snapshot

• Question: Could the foreign insurer make late elections under sections 953(d) and 831(b)?
• Outcome: Approved, with 90 days to make both elections.
• Key authorities: IRC §§ 831(b) and 953(d); Treas. Reg. §§ 301.9100-1, 301.9100-3, and 301.9100-8; Rev. Proc. 2003-47

Full text (IRS public release)

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Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201611001 Third Party Communication: None
Release Date: 3/11/2016 Date of Communication: Not Applicable
Index Number: 9100.22-00, 953.06-00,
831.00-00 Person To Contact:
---------------------, ID No. -----------------
---------------------------------- Telephone Number:
------------------------------------------ ---------------------
--------------------------------- Refer Reply To:
------------------------- CC:FIP:4
PLR-115775-15
In Re-------------------------------------------- Date:
December 10, 2015

Taxpayer = -------------------------------------------

Foreign Country = ------------------

Date A = ------------------

Date B = ------------------

Year 1 = -------

Individual = -------------------------

Management = --------------------------------

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

This letter is in response to Taxpayer’s request, pursuant to § 301.9100-3 of the
Procedure and Administration Regulations, requesting an extension of time (1) to make
the election under § 953(d) of the Internal Revenue Code and (2) to make the election
under § 831(b)(2)(A).

FACTS

Taxpayer represents that it was formed under the laws of Foreign Country on Date A of
Year 1 and licensed as an insurance company in Foreign Country on Date B of Year 1
PLR-115775-15 2

to provide property and casualty insurance coverage. Taxpayer represents that it
qualifies as an insurance company for federal income tax purposes.

Individual owns stock of Taxpayer and is Taxpayer’s President. Individual engaged
Management to manage Taxpayer. Individual believed that Management was
responsible for preparing and filing Taxpayer’s federal income tax returns and would
see to it that the appropriate elections were prepared and filed. The elections, however,
were not filed.

Taxpayer’s failure to make the election has not been discovered by the Internal
Revenue Service. In addition, Taxpayer represents that it does not seek to alter a
return position for which the accuracy related penalty has been or could have been
imposed under § 6662 at the time Taxpayer requested relief, and the new position
requires or permits a regulatory election for which relief is requested. Taxpayer
represents that it intended to make the § 953(d) and the § 831(b) elections but
inadvertently failed to do so. Finally, Taxpayer represents that it has not used hindsight
to seek an extension of time to make the election.

Taxpayer represents that granting relief will not result in a lower tax liability than it would
have had if it had filed the § 953(d) and the § 831(b) elections timely.

LAW AND ANALYSIS

Under § 953(d), certain foreign insurance companies may elect to be treated as
domestic corporations for U.S. tax purposes. The substantive and procedural rules for
making a § 953(d) election are contained in Notice 89-79, 1989-2 C. B. 392, and Rev.
Proc. 2003-47, 2003-2 C.B. 55. This guidance provides that the election must be filed
by the due date prescribed in § 6072(b) (including extensions) for the U.S. income tax
return that is due if the election becomes effective. Rev. Proc. 2003-47, section 4.04(2).
In addition, an electing corporation must use the calendar year as its annual accounting
period for U.S. tax purposes, unless it joins in the filing of a consolidated return and
adopts the parent corporation’s tax year. Notice 89-79, section 1.

Section 831(a) provides that taxes, computed as provided in § 11, are imposed for each
taxable year on the taxable income of every insurance company other than a life
insurance company. However, § 831(b) allows certain small companies to elect to be
subject to tax on their taxable investment income only. The election applies to the
taxable year for which the company made it and, as long as the company continues to
qualify, for all subsequent taxable years unless revoked with the consent of the
Secretary.

The time and manner to make the § 831(b)(2)(A)(ii) election is not prescribed by statute
but rather is prescribed by Treas. Reg. § 301.9100-8. Pursuant to Treas. Reg.
§ 301.9100-8(a)(2), the election is to be made by the due date (taking into account any
PLR-115775-15 3

extensions of time to file obtained by the taxpayer) of the tax return for the first taxable
year for which the election is to be effective by attaching a statement to the tax return
containing the information specified in Treas. Reg. § 301.9100-8(a)(3). Accordingly, the
§ 831(b)(2)(A)(ii) election is a regulatory election. Treas. Reg. § 301.9100-1(b).

Under Treas. Reg. § 301.9100-1(c), the Commissioner may grant a reasonable
extension of time under the rules set forth in Treas. Regs. §§ 301.9100-2 and 301.9100-
3 to make a regulatory or statutory election. Treas. Reg. § 301.9100-2 does not provide
relief for Taxpayer to make an election under § 831(b)(2)(A)(ii) for any of the years for
which relief is sought. Treas. Reg. § 301.9100-3(a) provides that requests for relief will
be granted when the taxpayer provides the evidence to establish to the satisfaction of
the Commissioner that it “acted reasonably and in good faith" and that "the grant of
relief will not prejudice the interests of the Government."

Under Treas. Reg. § 301.9100-3(b)(1), a taxpayer is deemed to have acted reasonably
and in good faith if it:

   (i)     requests relief under this section before the failure to make the regulatory
           election is discovered by the Internal Revenue Service;
   (ii)    failed to make the election because of intervening events beyond the
           taxpayer’s control;
   (iii)   failed to make the election because, after exercising reasonable diligence
           (taking into account the taxpayer’s experience and complexity of the return
           or issue), the taxpayer was unaware of the necessity for the election;
   (iv)    reasonably relied on the written advice of the Internal Revenue Service; or
   (v)     reasonably relied on a qualified tax professional, including a tax
           professional employed by the taxpayer, and the tax professional failed to
           make, or advise the taxpayer to make, the election.

Under Treas. Reg. § 301.9100-3(b)(3), a taxpayer is deemed not to have acted
reasonably and in good faith if it:

   (i)     Seeks to alter a return position for which an accuracy-related penalty has
           been or could be imposed under § 6662 at the time the taxpayer requests
           relief and the new position requires or permits a regulatory election for
           which relief is requested;
   (ii)    Was informed in all material respects of the required election and related
           tax consequences, but chose not to file the election; or
   (iii)   Uses hindsight in requesting relief.

The Commissioner will grant a reasonable extension of time to make a regulatory
election only when the interests of the Government will not be prejudiced by the
granting of relief. Treas. Reg. § 301.9100-3(c)(1).
PLR-115775-15 4

The interests of the Government are prejudiced if granting relief would result in a
taxpayer having a lower tax liability in the aggregate for all taxable years affected by the
election than the taxpayer would have had if the election had been timely made (taking
into account the time value of money). Treas. Reg. § 301.9100-3(c)(1)(i).

Treas. Reg. § 301.9100-1(a) cautions that granting an extension of time to make an
election is not a determination that the taxpayer is otherwise eligible to make the
election.

Based solely on Taxpayer’s representations and the additional information required
under Treas. Reg. § 301.9100-3(e), Taxpayer qualifies for an extension of time to make
the election under Treas. Reg. § 831(b)(2)(A)(ii). Taxpayer is deemed to have acted in
good faith, as defined by Treas. Reg. § 301.9100-3(b), and the grant of relief will not
prejudice the interests of the Government.

RULING

Accordingly, under Treas. Reg. § 301.9100-3, Taxpayer is granted an extension of time
until 90 days following the date of this letter (1) to make the election provided by
§ 953(d) effective for Year 1 and (2) to make the election provided by § 831(b)(2)(A)(ii)
effective for Year 1.

CAVEATS

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. This office has not verified any of the material submitted in
support of the request for rulings, and it is subject to verification on examination.

Except as provided above, no opinion is expressed or implied concerning the federal
income tax consequences of any other aspect of Taxpayer. Specifically, no ruling is
made as to whether Taxpayer qualifies as an insurance company under § 831(c) and
granting the extension under Treas. Reg. § 301.9100-1(a) should not be construed as a
determination that Taxpayer is eligible to make the election provided by
§ 831(b)(2)(A)(ii). Also, no ruling is granted with respect to Taxpayer’s entity
classification for federal income tax purposes.

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.
PLR-115775-15 5

In accordance with a power of attorney on file in this office, a copy of this letter is being
sent to your authorized representative.

                                               Sincerely,




                                               ALEXIS A. MACIVOR
                                               Branch Chief, Branch 4
                                               Office of the Associate Chief Counsel
                                               (Financial Institutions & Products)

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