Foreign subsidiary receives late disregarded-entity election relief

Plain-English summary

A domestic limited liability company formed a wholly owned foreign subsidiary and intended the subsidiary to be disregarded for federal tax purposes from its formation date. The subsidiary failed to timely file Form 8832. The IRS found that the regulatory relief requirements were satisfied and gave the subsidiary 120 days to file the election with the requested effective date. As a condition, the owner had to file all required returns for open years consistently with the relief, including any required Forms 5471 and 8858.

Ruling snapshot

• Question: May the foreign single-owner subsidiary make a late election to be treated as a disregarded entity from its formation date?
• Outcome: Approved with conditions. The subsidiary received 120 days to file Form 8832, and its owner must file consistent returns for all open years.
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201719003
Third Party Communication: None
Release Date: 5/12/2017
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
Person To Contact:
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Refer Reply To:
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CC:PSI:B01
PLR-122760-16
Date:
January 06, 2017

X = ------------------------------------------------------------------
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Y = ------------------------------------------------------------------
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Country = ---------------

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

Dear ---------------

This ruling is in response to your request dated July 6, 2016, submitted on behalf of Y, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to elect to be treated as a disregarded entity for federal income tax purposes.

FACTS

According to the information submitted, X is a domestic limited liability company treated as a partnership for federal income tax purposes. On Date 1, X’s wholly owned foreign subsidiary, Y, was formed under the laws of Country. Y represents that it intended to elect to be treated as a disregarded entity effective Date 1. However, Y failed to timely file a valid Form 8832, Entity Classification Election, to elect to be treated as a disregarded entity for federal tax purposes.
PLR-122760-16
2

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 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) provides that an entity classification election 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 301.9100-1(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 facts submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. As a result, Y is granted an extension of time of 120 days from the date of this letter to file a 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 should be attached to the Form 8832.
PLR-122760-16
3

This ruling is contingent on the owner of Y filing within 120 days of this letter all required returns for all open years consistent with the requested relief. These returns may include, but are not limited to, the following forms: (i) Forms 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, and (ii) Forms 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities, such that these forms reflect the consequences of the relief granted in this letter. 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.

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.

Pursuant to a power of attorney on file with this office, we are sending a copy of this letter to Y’s authorized representatives.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: Joy C. Spies
Joy C. Spies
Senior Technician Reviewer, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes

cc: