Foreign entity receives 120 days to elect disregarded status

Plain-English summary

A single-owner foreign eligible entity was classified by default as an association taxable as a corporation, but it intended disregarded-entity treatment from formation. A qualified tax professional failed to timely file Form 8832, while the owner consistently reported the entity as disregarded. The IRS found that the entity acted reasonably and in good faith and that relief would not prejudice the government. It granted 120 days to file Form 8832 electing disregarded status retroactively. Relief was conditioned on the owner filing all required open-year returns, including Forms 8858 where appropriate, consistently with the election.

Ruling snapshot

• Question: Could the foreign eligible entity make a late election to be disregarded from its formation date?
• Outcome: approved
• 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: 201728008 Third Party Communication: None
Release Date: 7/14/2017 Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
Person To Contact:
--------------------------- -----------------------------, ID No. -------------
------------------------------ -----------------
----------------------------------------------------- Telephone Number:
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----------------------- Refer Reply To:
CC:PSI:01
PLR-126006-16
Date:
February 14, 2017

Legend

X = ------------------------------
----------------------------
Country = -----------------------------
Date 1 = --------------------

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

  This letter responds to a letter dated August 19, 2016, 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

     According to the information submitted, X was formed under the laws of Country

on Date 1 and classified, for U.S. federal tax purposes, as an association under the
default rule of § 301.7701-3(b). X represents that, as of Date 1, it was a foreign entity
eligible to elect to be classified as a disregarded entity for U.S. federal income tax
purposes. X represents that it intended to be a disregarded entity for federal income tax
purposes effective Date 1. X represents that it relied upon a qualified tax professional
to file the election effective Date 1; however, the tax professional failed to file the
election timely.

   X represents that its owner consistently reported income treating X as a

disregarded entity. 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
PLR-126006-16 2

the aggregate for all years to which the request applies. Finally X represents that it
acted reasonably and in good faith.

                               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) provides 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)(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.

   Under § 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 Internal
Revenue Code, except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term
“regulatory election” as including an election whose due date is prescribed by a
regulation published in the Federal Register.

    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 an
election. Section 301.9100-2 provides the rules for 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 the
regulatory elections that do not met the requirements of § 301.9100-2. Requests for
relief under § 301.9100-3 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.
PLR-126006-16 3

                                  CONCLUSION

   Based solely on the information submitted and the 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, effective Date 1, with the appropriate service
center. A copy of this letter should be attached to each Form 8832.

   This ruling is contingent on the owner of X filing within 120 days of this letter all

required returns for all open years consistent with the requested relief. To the extent
appropriate these returns must include, but are not limited to Form 8858, Information
Return of U.S. Persons With Respect to Disregarded Entities, such that the forms and
returns reflect the consequences of the relief granted in this letter. 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 of the facts described above under any other
provision of the Code. 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 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
                                  Laura C. Fields
                                  Senior Technician Reviewer, Branch 1
                                  (Passthroughs & Special Industries)

Enclosures (2)
Copy of Letter
Copy for 6110 Purposes