Foreign entity receives 120 days for a late corporate classification election

Plain-English summary

A foreign entity owned through a qualified Subchapter S subsidiary intended to be classified as an association taxable as a corporation from a specified date. It failed to timely file Form 8832 to make that election. The IRS found that the requirements for discretionary relief under section 301.9100-3 were satisfied. The entity received 120 days from the ruling date to file Form 8832 with a copy of the ruling attached and obtain the requested effective date. The IRS did not decide whether the entity or any related entity was otherwise a valid corporation for federal tax purposes.

Ruling snapshot

• Question: May the foreign eligible entity receive extra time to elect corporate classification on Form 8832?
• Outcome: Approved, with 120 days to file the election.
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-1 through -3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201614024                                              Third Party Communication: None
Release Date: 4/1/2016                                         Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00
                                                               Person To Contact:
-----------------                                              ------------------------------------, ID No. ------
----------------                                               ----------------
--------------------------------                               Telephone Number:
 ---------------------------                                   --------------------
                                                               Refer Reply To:
                                                               CC:PSI:B01
                                                               PLR-129703-15
                                                               Date:
                                                               December 16, 2015


Legend

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

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

         Z                 =         -----------------------------------
----------------------------------------------------------

         Country           =        --------------------

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

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

Dear --------------,

       This responds to a letter dated September 8, 2015, and accompanying materials,
submitted on behalf of X, requesting an extension of time pursuant to Treas. Reg. §§
301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations, to make
an entity classification election under Treas. Reg. § 301.7701-3.

                                         Facts
       According to the letter and accompanying submission, X is an entity organized
under the laws of Country. X is wholly owned by Y, a QSub, which in turn, is wholly
owned by Z, an S corporation. The taxpayer was formed on Date 1 by Z through Y.
PLR-129703-15                                  2

       X intended that it be classified as foreign association taxable as a corporation
federal tax purposes. However, the taxpayer failed to file Form 8832to be classifies as
a corporation effective Date 2. The taxpayer is requesting an extension to make an
election to be classified as a corporation effective Date 2.

                                        Law and Analysis
        Section 301.7701-3(a) provides that a business entity that is not classified as a
corporation under section 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 more
than one owner can elect to be classified as an association or as partnership.

       Section 301.7701-3(b) provides a default classification for an eligible entity that
does not make an election. Section 301.7701-3(b)(2)(i) provides that, unless the entity
elects otherwise, a foreign eligible entity is (A) a partnership if it has two 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(c)(1)(i) provides that an eligible entity may elect to be
classified other than as provided under § 301.7701-3(b) by filing Form 8832, Entity
Classification Election, 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.

       Section 301.7701-3(c)(1)(i) provides, in part, that an eligible entity may elect to
be classified other than as provided under section 301.7701-3(b) by filing Form 8832,
Entity Classification Election, with the applicable service center.

      Under section 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
Code, except subtitles E, G, H, and I.

       Sections 301.9100-2 and 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 making elections that do not meet the
requirements of § 301.9100-2. Requests for relief under § 301.9100-3 will be granted
when the taxpayer provides evidence to establish that the taxpayer acted reasonably
and in good faith, and that granting relief will not prejudice the interests of the
government.
PLR-129703-15                                 3

                                          Conclusion
        Based solely on the facts submitted and 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 Form 8832 to elect to
treat X as an association taxable as a corporation, effective Date 2. The election should
be filed with the appropriate service center. A copy of this letter should be attached to
the election. A copy of this letter is attached for this purpose.

        Except as specifically set forth above, we express or imply no opinion concerning
the federal tax consequences of the facts described above under any other provision of
the Code. Specifically, we do not express an opinion concerning whether X or any
entity described in the facts is a valid corporation for federal tax purposes.

       This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the
Internal Revenue Code provides that it may not be used or cited as precedent. In
accordance with the Power of Attorney on file with this office, copies of this letter is
being faxed and mailed to X’s authorized representatives.

                                       Sincerely,

                                       Curt G. Wilson
                                       Deputy Associate Chief Counsel
                                       (Passthroughs & Special Industries)



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

Enclosures (2):
      Copy of this letter
      Copy for section 6110 purposes


       cc: