Grants foreign subsidiary's late disregarded-entity election

Plain-English summary

A foreign limited liability company formed a wholly owned foreign subsidiary and intended to treat it as disregarded from formation. The subsidiary did not timely file a valid Form 8832, but its owner consistently reported it as a disregarded entity. The owner represented that the request did not use hindsight, would not lower aggregate tax liability, and would not prejudice the government. The IRS concluded that the regulatory-election relief standards were met and granted 120 days to file Form 8832 with the intended effective date. The owner also had to file all required open-year returns, including Forms 5471 and 8858 when applicable, consistently with the relief.

Ruling snapshot

• Question: Could the wholly owned foreign subsidiary make a late election to be disregarded from its formation date?
• Outcome: Approved, with 120 days to file Form 8832 and consistent open-year returns.
• 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: 201827004
Third Party Communication: None
Release Date: 7/6/2018
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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Date:
April 04, 2018

Legend

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

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

Country = ---------

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

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

This ruling is in response to your request dated October 2, 2017, 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 foreign limited liability company. 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.

X represents that it consistently reported income treating Y 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 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 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) 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 § 301.9100-1 and § 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.

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)

Joy C. Spies

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

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

cc: