Late Form 8832 relief preserved intended foreign partnership status

Plain-English summary

A foreign eligible entity intended to be treated as a partnership from formation, but its limited-liability members caused corporate default classification unless it filed Form 8832. A qualified tax professional failed to advise the entity to make the election. The partners consistently reported partnership income, and the entity represented that relief involved no hindsight, would not harm the government, and would not reduce aggregate tax. The IRS granted 120 days to elect partnership classification retroactive to formation. The owners had to file all required returns for open years consistently, including Forms 8865 where appropriate.

Ruling snapshot

• Question: Could the foreign eligible entity file a late partnership classification election effective from formation?
• Outcome: Approved, with 120 days for Form 8832 and consistent owner filings.
• Key authorities: Treas. Reg. §§ 301.7701-3(b)(2) and (c), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201825009                                             Third Party Communication: None
Release Date: 6/22/2018                                       Date of Communication: Not Applicable
Index Number: 9100.31-00, 7701.00-00
                                                              Person To Contact:
------------------------------                                -----------------------------, ID No. -------------
-----------------------------------------------------         -----------------
--------------------------                                    Telephone Number:
 ------------------------------------                         ----------------------
                                                              Refer Reply To:
                                                              CC:PSI:01
                                                              PLR-129954-17
                                                              Date:
                                                              March 16, 2018

Legend

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


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

      This letter responds to a letter dated September 15, 2017, 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 partnership for federal tax purposes.

                                                        FACTS

       The information submitted states that X was formed under the laws of Country on
Date 1. X represents that, as of Date 1, it was a foreign entity eligible to elect to be a
partnership for U.S. federal tax purposes and at all times its partners intended X to be
treated as a partnership. X’s default status is an association taxable as a corporation.
X represents that it relied upon a qualified tax professional to provide tax advice;
however, the tax professional failed to advise X of the need to file a Form 8832, Entity
Classification Election. Thus, X failed to file a time election under § 301.7701-3.

         X represents that its partners consistently reported income treating X as a
partnership. 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. Finally, X represents that it acted reasonably
and in good faith.
PLR-129954-17                                  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 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 multiple members having limited
liability may elect to be treated as a partnership 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
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 reasonably
and in good faith, and (2) granting relief will not prejudice the interests of the
government.
PLR-129954-17                                    3


                                       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
partnership 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. To the extent
appropriate these returns must include, but are not limited to Form 8865, Information
Return of U.S. Persons With Respect to Certain Foreign Partnerships, 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 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
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 representative.


                                          Sincerely,
                                          Associate Chief Counsel
                                          (Passthroughs & Special Industries)


                                          Joy C. Spies
                                    By:
                                          Joy C. Spies
                                          Senior Technician Reviewer
                                          (Passthroughs & Special Industries)

Enclosures (2)
 Copy of Letter
 Copy for 6110 Purposes


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