Late relief granted to elect foreign disregarded-entity status

Plain-English summary

A foreign business entity with a single owner wanted to be treated as a "disregarded entity" for U.S. federal tax purposes (meaning it is ignored as separate from its owner, so the owner reports its income directly) starting from the day it was formed. To get that treatment it had to file Form 8832, the "check-the-box" entity classification election, on time, but it missed the deadline. It asked the IRS for extra time under Treas. Reg. § 301.9100-3, which lets the IRS grant a late election if the taxpayer acted reasonably and in good faith and the government is not harmed. The IRS agreed the standard was met and gave the entity 120 days from the date of the letter to file Form 8832, effective back to the formation date, on the condition that the owners also file all required returns (such as Forms 5471, 8865, and 8858) consistent with the relief. Owners of foreign entities who blew the check-the-box deadline would care: this is the routine path to fix it.

Ruling snapshot

• Question: May the entity get a late extension under § 301.9100-3 to file Form 8832 electing to be a foreign disregarded entity effective from formation?
• Outcome: approved (120-day extension granted)
• Key authorities: Treas. Reg. § 301.7701-3(c) (check-the-box election); Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                          Department of the Treasury
                                                  Washington, DC 20224

Number: 201837010                                 Third Party Communication: None
Release Date: 9/14/2018                           Date of Communication: Not Applicable
Index Numbers: 7701.00-00; 9100.31-00
                                                  Person To Contact:
                                                  [redacted], ID No. [redacted]
                                                  Telephone Number:
                                                  [redacted]
                                                  Refer Reply To:
                                                  CC:PSI:B01
                                                  PLR-136694-17
                                                  Date:
                                                  June 08, 2018


LEGEND

X                 =         [redacted]

Y                 =         [redacted]

D1                =         [redacted]

Country           =         [redacted]


Dear [redacted]:

This is in response to a letter dated October 4, 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 foreign disregarded entity for federal tax purposes.

FACTS

According to the information submitted, Y formed X on D1 under the laws of Country.
X intended to be treated as a foreign disregarded entity for federal tax purposes
effective D1. However, X inadvertently failed to timely file Form 8832, Entity
Classification Election, to be treated as a disregarded entity for federal tax purposes.

X represents that it acted reasonably and in good faith, and that the interests of the
government will not be prejudiced by granting relief. X further represents that no
hindsight is involved in seeking the relief requested.

LAW AND ANALYSIS

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 owner 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.

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 that the Commissioner
will use to determine whether to grant an extension of time to make an election. Section
301.9100-1(a).

Section 301.9100-2 provides automatic extensions of time for making certain elections.
Section 301.9100-3 provides rules for requesting extensions of time for regulatory
elections that do not meet the requirements of § 301.9100-2.

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides
evidence to establish that the taxpayer acted reasonably and in good faith, and that
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, X is granted an
extension of time of 120 days from the date of this letter to make an election to be
treated as a disregarded entity for federal tax purposes effective D1. X shall make the
election by filing a properly executed Form 8832 with the appropriate service center. A
copy of this letter should be attached to the form.

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. 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, (ii) Forms 8865,
Return of U.S. Persons With Respect to Certain Foreign Partnerships, and (iii) Forms
8858, Information Return of U.S. Persons With Respect to 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 expressly provided herein, 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 requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.



                                       Sincerely,

                                       Holly Porter
                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)


                                          Joy C. Spies
                                  By: _____________________________
                                      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: