Grants late disregarded-entity election before partnership conversion

Plain-English summary

A foreign eligible entity intended to be treated as disregarded from its formation date but inadvertently failed to file Form 8832 on time. It initially had one owner and later became a multiple-member entity. The IRS found that the requirements for discretionary election relief were satisfied and granted 120 days to file Form 8832 with the intended original effective date. The entity then had to be treated as a partnership from the date it gained multiple members. The relief also required the entity and its owners to file all necessary returns, including Forms 8858 and 8865 when appropriate, consistently with those classifications within the same 120-day period.

Ruling snapshot

• Question: Could the foreign entity make a late disregarded-entity election for the period before it became a multiple-member partnership?
• Outcome: Approved, with 120 days to file Form 8832 and all consistent federal 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: 201828004
Third Party Communication: None
Release Date: 7/13/2018
Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 9100.31-00
Person To Contact:
---------------------
--------------------------, ID No. --------------
---------------------------
Telephone Number:
-------------------------
----------------------
----------------------------------------
Refer Reply To:
------------------------
CC:PSI:B03
PLR-103299-18
Date:
April 09, 2018

LEGEND

Taxpayer = --------------------------------------------------------------------------------------------------------------------

Country = -----------------------

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

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

Date 2 = ---------------------------

Dear --------:

This letter responds to a letter dated January 10, 2018, submitted on behalf of X by its authorized representative, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election under § 301.7701-3 to treat X as a disregarded entity for federal tax purposes.

FACTS

X was formed under the laws of Country on Date 1. From Date 1 until Date 2, X was wholly owned by Taxpayer. On Date 2, X became a multiple-member entity. X represents that it is a foreign entity eligible to elect to be classified as a disregarded entity for federal tax purposes on Date 1. X intended to be classified as a disregarded entity effective Date 1. However, due to inadvertence, X failed to timely file Form 8832, Entity Classification Election.

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 as provided in § 301.7701-3. An eligible entity with at least two members can elect to be classified as either an association (and thus a corporation under § 301.7701-2(b)(2)) 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)(i) provides that, unless it elects otherwise, a foreign eligible entity is (A) a partnership if it has two or more 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(b)(2)(ii) provides that a member of a foreign eligible entity has limited liability if the member has no personal liability for the debts of or claims against the entity by reason of being a member.

Section 301.7701-3(c)(1)(i) provides, in part, that an eligible entity may elect to be classified other than as provided under § 301.7701-3(b), or to change its classification, by filing Form 8832 with the service center designated on Form 8832.

Section 301.7701-3(c)(1)(iii) provides that an election made under § 301.7701-3(c)(1)(i) will be effective on the date specified by the entity on Form 8832 or on the date filed if no such date is specified on the election form. The effective date specified on Form 8832 can not be more than 75 days prior to the date on which the election is filed and can not be more than 12 months after the date on which the election is filed.

Section 301.7701-3(f)(2) provides, in part, that a single member entity disregarded as separate from its owner is classified as a partnership when the entity has more than one member.

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 six months except in the case of a taxpayer who is abroad), under all subtitles of the Code, except subtitles E, G, H, and I. Section 301.9100-1(b) defines a regulatory election as an election whose due date is prescribed by a regulation published in the Federal Register, or revenue ruling, revenue procedure, notice or announcement published in the Internal Revenue Bulletin.

Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections.

Section 301.9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of § 301.9100-2. Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3 will be granted when the taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.

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. As a result, X is granted an extension of time of 120 days from the date of this letter to file a properly executed Form 8832 with the appropriate service center electing to be treated as a disregarded entity effective Date 1. In so doing, X must subsequently be treated as a partnership effective Date 2, when X became a multiple member entity. A copy of this letter should be attached to the Form 8832.

This ruling is contingent on X and its owners filing within 120 days from the date of this letter all required federal income tax and information returns (including amended returns) consistent with the requested relief granted in this letter. To the extent appropriate, these returns may include, but are not limited to, Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities, and Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, 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 expressly provided herein, we express or imply no opinion concerning the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In addition, § 301.9100-1(a) provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Internal Revenue 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 X’s authorized representative.

The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the ruling request, it is subject to verification on examination.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: _____
James A. Quinn
Senior Counsel, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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