IRS grants a foreign reinsurance company late-election relief for both the § 953(d) domestic-treatment and § 831(b) small-insurer elections

Plain-English summary

A small foreign insurance company that reinsures insurance contracts, owned by
three individuals, wanted two tax elections: one under Code Section 953(d) to be
treated as a U.S. domestic corporation, and one under Section 831(b) to be taxed
as a small insurance company (taxed only on investment income). It thought its
professional advisor had filed the § 953(d) election, and it filed its returns
accordingly, but the advisor never actually filed it. Because the § 953(d)
election never took effect, the company remained foreign and was not even
eligible to make the § 831(b) election. The company sought "9100" relief, which
lets the IRS grant extra time to make missed elections when the taxpayer acted
reasonably and in good faith, here by reasonably relying on a qualified tax
professional who failed to file. The IRS granted both extensions: 60 days to make
the § 953(d) election and 90 days to make the § 831(b) election, effective for
the intended year, conditioned on the relief not lowering the company's overall
tax. The IRS did not rule on whether the company actually qualifies for either
election.

Ruling snapshot

• Question: Should the foreign insurer get extensions of time under Treas. Reg. § 301.9100-3 to make late § 953(d) and § 831(b)(2)(A)(ii) elections?
• Outcome: Approved (60-day § 953(d) and 90-day § 831(b) extensions granted, subject to conditions)
• Key authorities: IRC § 953(d); IRC § 831(a), (b); IRC § 816(a); Treas. Reg. §§ 301.9100-1, 301.9100-3, 301.9100-8; Rev. Proc. 2003-47; Notice 89-79

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201845024
Release Date: 11/9/2018
Index Number: 953.06-00, 831.00-00, 831.02-00, 9100.00-00

[Third Party Communication:
Date of Communication: Month DD, YYYY]

Person To Contact:
------------------, ID No. --------------------
Telephone Number:

Refer Reply To:
CC:INTL:B02
PLR-108476-18

Date:
August 03, 2018

TY: -------

LEGEND

Taxpayer = ------------------------------------------------------------------------
-----------------------
Year 1 = -------
Country X = --------------------------------
Individual A = ------------------
-------------------------
Individual B = -----------------
-------------------------
Individual C = ---------------------------
-------------------------
Professional Advisor D = ---------------------
E = ----
F = --------
G = --------
Year 2 = -------

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

   This is in response to a letter received by our office on March 23, 2018,

submitted on behalf of Taxpayer by its authorized representative, requesting an
extension of time under Treas. Reg. § 301.9100-3 to make the elections provided under
(1) section 953(d) for Year 1 and (2) section 831(b)(2) effective for Taxpayer's taxable
year ending December 31, Year 1.

  The ruling contained in this letter is predicated upon facts and representations

submitted by Taxpayer and accompanied by a penalty of perjury statement executed by

PLR-108476-18 2

an appropriate party. This office has not verified any of the material submitted in
support of the request for a ruling. Verification of the factual information,
representations, and other data may be required as part of the audit process.

FACTS

   Taxpayer is a corporation that is organized and regulated as an insurance

company under the laws of Country X. Taxpayer derives all of its business from
reinsuring insurance contracts. Taxpayer is owned by Individual A (E% owner),
Individual B (F% owner), and Individual C (G% owner). Because Taxpayer derives
more than half of its business from the reinsuring of insurance contracts, Taxpayer
represents that, as such, it is an insurance company under section 816(a) that would
qualify for treatment under part II of subchapter L for its taxable year ending December
31, Year 1, if it were a domestic corporation.

    Taxpayer retained the assistance of Professional Advisor D to advise on all

aspects of corporate formation and to be responsible for all aspects of Taxpayer's U.S.
income tax compliance. The services to be provided to Taxpayer by Professional
Advisor D under the scope of its engagement were to be performed by qualified tax
professionals. Taxpayer represented that it relied on Professional Advisor D to file all
the necessary income tax elections, including the section 953(d) election for Taxpayer
to be treated as a domestic corporation and section 831(b) election for Taxpayer to be
treated as a small insurance company.

    In Year 2, Taxpayer requested a copy of its approved section 953(d) election

from Professional Advisor D. Professional Advisor D was unable to provide a copy.
Taxpayer's U.S. federal income tax return for Year 1 included the section 953(d)
election to be treated as a domestic corporation and section 831(b) election to be
treated as a small insurance company. Taxpayer represented that Professional Advisor
D failed to file the section 953(d) election in accordance with Rev. Proc. 2003-47, 2003-
28 C.B. 55. In addition, Professional Advisor D failed to advise Taxpayer of the
consequences of failing to make a section 953(d) election with respect to Taxpayer's
Year 1. Because Taxpayer failed to timely file the section 953(d) election statement
with the Plantation, Florida office of the IRS as prescribed by Rev. Proc. 2003-47, it did
not have a valid section 953(d) election in place. Therefore, it remained a foreign
insurance company for U.S. federal income tax purposes and as such, Taxpayer was
ineligible to make a section 831(b) election.

   Taxpayer's failure to make these elections was not discovered by the Internal

Revenue Service before Taxpayer submitted its ruling request. In addition, Taxpayer
represents that it does not seek to alter a return position for which the accuracy-related
penalty has been or could have been imposed under section 6662 at the time Taxpayer
requested relief. Taxpayer represents that it intended to make the section 953(d)
election but, having inadvertently failed to do so, it was ineligible to make the section

PLR-108476-18 3

831(b) election. Finally, Taxpayer represents that it has not used hindsight to seek an
extension of time to make the election. Taxpayer represents that granting relief will not
result in a lower tax liability than it would have had if it had filed the section 953(d) and
section 831(b) elections timely.

LAW AND ANAYLSIS

    Under section 953(d), certain foreign insurance companies may elect to be

treated as domestic corporations for U.S. tax purposes. The substantive and
procedural rules for making a section 953(d) election are contained in Notice 89-79,
1989-2 C.B. 392, and Rev. Proc. 2003-47, 2003-2 C.B. 55. Rev. Proc. 2003-47
provides that the election must be filed by the due date prescribed in section 6072(b)
(including extensions) for the U.S. income tax return that is due if the election becomes
effective. Rev. Proc. 2003-47, section 4.04(2). In addition, an electing corporation must
use the calendar year as its annual accounting period for U.S. tax purposes, unless it
joins in the filing of a consolidated return and adopts the parent corporation's tax year.
Notice 89-79, section 1. In the present situation, Rev. Proc. 2003-47 fixes the time to
make the election under section 953(d). Therefore, the Commissioner has discretionary
authority under Treas. Reg. § 301.9100-1(c) to grant Taxpayer an extension of time,
provided that Taxpayer satisfies the standards set forth under Treas. Reg. § 301.9100-
3(a).

   Section 831(a) provides that taxes, computed as provided in section 11, are

imposed for each taxable year on the taxable income of every insurance company other
than a life insurance company. However, section 831(b) allows certain small
companies to make an election to be subject to tax on their taxable investment income
only. The election applies to the taxable year for which the company made the election
and, as long as the company continues to qualify, for all subsequent taxable years
unless revoked with the consent of the Secretary.

     The time and manner to make the section 831(b)(2)(A)(ii) election is not

prescribed by statute but rather is prescribed by Treas. Reg. § 301.9100-8. Pursuant to
Treas. Reg. § 301.9100-8(a)(2), the election is to be made by the due date (taking into
account any extensions of time to file obtained by the taxpayer) of the tax return for the
first taxable year for which the election is to be effective by attaching a statement to the
tax return containing the information specified in Treas. Reg. § 301.9100-8(a)(3).
Accordingly, the section 831(b)(2)(A)(ii) election is a regulatory election. Treas. Reg.
§ 301.9100-1(b).

  Under Treas. Reg. § 301.9100-1(c), the Commissioner may grant a reasonable

extension of time under the rules set forth in Treas. Regs. §§ 301.9100-2 and
301.9100-3 to make a regulatory or statutory election.

PLR-108476-18 4

    Treas. Reg. § 301.9100-2 does not provide relief for Taxpayer to make an

election under section 831(b)(2)(A)(ii) for any of the years for which relief is sought.
Requests for extensions of time for regulatory elections that do not meet the
requirements of Treas. Reg. § 301.9100-2 must be made under Treas. Reg.
§ 301.9100-3. Treas. Reg. § 301.9100-3(a) provides that requests for relief will be
granted when the taxpayer provides the evidence to establish to the satisfaction of the
Commissioner that it "acted reasonably and in good faith" and that "the grant of relief
will not prejudice the interests of the Government."

  Under Treas. Reg. § 301.9100-3(b)(1), a taxpayer is deemed to have acted

reasonably and in good faith if it:

  (i) Requests relief before the failure to make the regulatory
  election is discovered by the Internal Revenue Service;

  (ii) Failed to make the election because of intervening events beyond the
  taxpayer's control;

  (iii) Failed to make the election because, after exercising reasonable diligence
  (taking into account the taxpayer's experience and complexity of the return
  or issue), the taxpayer was unaware of the necessity for the election;

  (iv) Reasonably relied on the written advice of the Internal Revenue Service; or

  (v) Reasonably relied on a qualified tax professional, including a tax
  professional employed by the taxpayer, and the tax professional failed to
  make, or advise the taxpayer to make, the election.

  Under Treas. Reg. § 301.9100-3(b)(3), a taxpayer is deemed not to have acted

reasonably and in good faith if it:

  (i) Seeks to alter a return position for which an accuracy-related penalty has
  been or could be imposed under section 6662 at the time the taxpayer requests
  relief and the new position requires or permits a regulatory election for
  which relief is requested;

  (ii) Was informed in all material respects of the required election and related
  tax consequences, but chose not to file the election; or

  (iii) Uses hindsight in requesting relief.

   The Commissioner will grant a reasonable extension of time to make a regulatory

election only when the interests of the Government will not be prejudiced by the
granting of relief. Treas. Reg. § 301.9100-3(c)(1).

PLR-108476-18 5

   The interests of the Government are prejudiced if granting relief would result in a

taxpayer having a lower tax liability in the aggregate for all taxable years affected by the
election than the taxpayer would have had if the election had been timely made (taking
into account the time value of money). Treas. Reg. § 301.9100-3(c)(1)(i).

   Treas. Reg. § 301.9100-1(a) cautions that granting an extension of time to make

an election is not a determination that the taxpayer is otherwise eligible to make the
election.

CONCLUSION

  Based solely on the facts and information submitted, and the additional

information required under Treas. Reg. § 301.9100-3(e), Taxpayer qualifies for an
extension of time to make the elections under section 831(b)(2)(A)(ii) and section
953(d). Taxpayer is deemed to have acted in good faith, as defined by Treas. Reg.
§ 301.9100-3(b), and the grant of relief will not prejudice the interests of the
Government.

    Accordingly, Taxpayer is granted an extension of time of 60 days from the date of

this ruling letter to make the section 953(d) election, in accordance with the procedural
rules set forth in Rev. Proc. 2003-47, to be treated as a domestic corporation for U.S.
federal income tax purposes effective for Year 1. Also, under Treas. Reg. § 301.9100-
3, Taxpayer is granted an extension of time until 90 days following the date of this letter
to make the election provided by section 831(b)(2)(A)(ii), effective for Taxpayer's
taxable year ending, December 31, Year 1.

   The above extension of time is conditioned on Taxpayer's tax liability (if any)

being not lower, in the aggregate, for all years to which the section 953(d) and section
831(b) elections apply than it would have been if the elections had been timely filed
(taking into account the time value of money). No opinion is expressed as to
Taxpayer's tax liability for the years involved. No opinion is expressed or implied
concerning the federal income tax consequences of any other aspect of this or other
transactions or item of income. Further, the granting of the above extension is not a
determination that Taxpayer qualifies as an insurance company under section 831(c) or
that Taxpayer is otherwise eligible to make the section 953(d) and section 831(b)
elections. Treas. Reg. § 301.9100-1(a). Also, no ruling is granted with respect to
Taxpayer's entity classification for federal income tax purposes.

PLR-108476-18 6

  This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

   Pursuant to a power of attorney on file in this office, copies of this ruling letter are

being furnished to your authorized representatives.

                                        Sincerely,

                                        Kristine A. Crabtree
                                        Senior Technical Reviewer
                                        (INTL)

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