Foreign entity receives more time to elect disregarded status

Plain-English summary

A foreign eligible entity was wholly owned by an S corporation through a qualified subchapter S subsidiary. The owners intended from formation to treat the foreign entity as disregarded for federal tax purposes, but their representatives failed to file Form 8832 on time. The S corporation consistently reported the entity as disregarded and filed annual Forms 8858, while the owners included the entity's income on their returns. The IRS found that the entity acted reasonably and in good faith and granted 120 days to file the classification election retroactively. Relief was conditioned on the owners filing all required returns for open years consistently with that treatment within the same period.

Ruling snapshot

• Question: Should the foreign single-owner entity receive more time to elect disregarded-entity classification?
• Outcome: Approved, with 120 days to file Form 8832 and any required open-year 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: 201628012                                              Third Party Communication: None
Release Date: 7/8/2016                                         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:01
--------------------------------------                         PLR-134845-15
                                                               Date:
                                                               March 29, 2016




Legend
X                   =     ------------------------------------------------------------------------------------------
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Y                   =     ------------------------------------------------------------------------------------------
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Country             =     -------
Date 1              =     ------------------



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

      This letter responds to a letter dated October 6, 2015, and subsequent
correspondence, 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(c) to be treated as a disregarded entity for federal tax purposes.

                                                     FACTS

       The information submitted states that X was formed under the laws of Country on
Date 1. Y, a subchapter S corporation wholly owns X through a domestic qualified
subchapter S subsidiary. X represents that as of Date 1, it was a foreign entity eligible
to elect to be a disregarded entity for U.S. federal tax purposes and at all times Y
intended X to be treated as a disregarded entity.
PLR-134845-15                                  2

       X represents it was advised of the need to make an election for U.S. federal
income tax purposes to be treated as a disregarded entity and relied on its
representatives to make the election on its behalf. However, X failed to timely file a
Form 8832, Entity Classification Election, electing to be treated as a disregarded entity
for U.S. federal tax purposes effective Date 1.

       X represents that Y consistently filed U.S. federal income tax returns treating X
as a disregarded entity and filed the required annual disclosure on Form 8858,
Information Return of U.S. Persons With Respect to Foreign Disregarded Entities. X
also represents that granting relief will not prejudice the interests of the government and
that hindsight is not involved in seeking relief to file a late election. X further represents
that such relief would not result in a lower tax liability in the aggregate for all years to
which the request applies, as the direct and indirect owners of X properly reported the
net income of X on their returns. Finally X represents that it acted reasonably and in
good faith.

                                   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 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. 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)(1)(i) provides that an eligible entity may elect to be
classified other than as provided under § 301.7701-3(b)(2) by filing Form 8832 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 and no more than 12 months after the date the
election 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) provides
PLR-134845-15                                  3

that the term “regulatory election” includes 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 extension 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 the
regulatory elections that do not meet the requirements of § 301.9100-2. Under
§ 301.9100-3, a request for relief will be granted when a taxpayer provides evidence to
establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonable
and in good faith, and (2) granting relief will not prejudice the interests of the
government.

                                       CONCLUSION

        Based solely on the facts submitted and representations made, we conclude that
X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Accordingly, X is
granted an extension of time of one hundred twenty (120) days from the date of this
letter to file 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 is
attached for that purpose.

        This ruling is contingent on the owners of X filing within 120 days of this letter all
required returns for all open years consistent with the requested relief. A copy of this
letter should be attached to any such returns.

      Except as expressly set forth herein, no opinion is expressed or implied
concerning the federal tax consequences any aspect of any transaction or item
discussed or referenced in this letter. This ruling is directed only to the taxpayer
requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited
PLR-134845-15                                4


as precedent. Pursuant to a power of attorney on file with this office, a copy of this
letter is being sent to X’s authorized representatives.

                                       Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)


                                 By:
                                       Laura C. Fields
                                       Senior Technician Reviewer, Branch 1
                                       (Passthroughs & Special Industries)



Enclosures (2)
 Copy of Letter
 Copy for 6110 purposes



cc: