Foreign entity gets extra time to elect partnership treatment after advisors missed the filing

Plain-English summary

Three domestic partnerships formed a foreign business entity and always intended
for it to be taxed as a partnership in the United States. To lock that in, the
entity needed to file a "check-the-box" election (Form 8832) under the section
7701 classification rules, but its legal and financial advisors never told it
to, so the election was never filed, even though everyone reported the entity
as a partnership on their returns. The entity asked the IRS for more time under
the section 301.9100-3 relief rules. The IRS granted a 120-day extension to
file Form 8832 electing partnership treatment retroactive to the entity's
formation date, finding the taxpayer acted reasonably and in good faith and
that relief would not prejudice the government. The relief is conditioned on the
two owners filing any needed returns and information returns (including Form
8865 for U.S. persons with interests in foreign partnerships) consistent with
the election. The IRS cautioned that granting the extension is not a ruling
that the entity is actually eligible to make the election. This matters because
without partnership classification the entity could default to less favorable
treatment; the relief preserves the intended pass-through result.

Ruling snapshot

• Question: Should the IRS grant an extension of time to file a late entity-classification election (Form 8832) to treat a foreign entity as a partnership?
• Outcome: approved (120-day extension granted under Treas. Reg. § 301.9100-3)
• Key authorities: Treas. Reg. §§ 301.7701-3(a), (b), (c); 301.9100-1; 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201847004 Third Party Communication: None
Release Date: 11/23/2018 Date of Communication: Not Applicable

                                                           Person To Contact:

Index Number: 7701.00-00, 9100.00-00, ------------------------, ID No. -------------------
9100.31-00 ----------------------------------------------------
Telephone Number:
------------------------------------------------- ---------------------
------------------------------------ Refer Reply To:
-------------------------- CC:PSI:B03
------------------------------ PLR-108016-18
Date:
August 22, 2018

Legend

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

A = ----------------------------
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B = -------------------------------------
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C = -----------------------------------------------
-----------------------

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

Date = ---------------------------

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

    This letter responds to a letter dated March 8, 2018, and subsequent

correspondence, submitted on behalf of X and requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations for X to file an entity
classification election to be treated as a partnership for federal income tax purposes.
PLR-108016-18 2

    The information submitted states that X was formed by A, B and C under the

laws of Country on Date. A, B and C are each domestic partnerships. X represents
that it was always the intention of A, B and C to treat X as a partnership for federal tax
purposes. X represents that this intention was communicated to X’s legal and financial
advisors. However, X was not informed of the need to file an entity classification
election by its legal and financial advisors, and X failed to prepare or file the election
due to oversight and unintentional error. X further represents that X, A, B and C
consistently treated X as a partnership on their federal tax returns for all relevant tax
years. X now seeks relief to make a late entity classification election to be treated as a
partnership for federal income tax purposes effective on Date.

    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. Elections are necessary only when an
eligible entity does not want to be classified under the default classification or when an
eligible entity chooses to change its classification.

   Section 301.7701-3(b) provides default classification for an eligible entity that

does not make an election. Section 301.7701-3(b)(2)(i) provides that, unless the entity
elects otherwise, a foreign eligible entity is (A) a partnership if it has two 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(c)(1)(i) provides 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, Entity Classification Election, 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.

   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
PLR-108016-18 3

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 a taxpayer provides evidence to establish to the
satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good
faith, and (2) the granting of relief will not prejudice the interests of the government.

    Based solely on the information submitted and the representations made, we

conclude that the requirements of §§ 301.9100-1 and 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
file a Form 8832 with the appropriate service center to elect to be treated as a
partnership effective Date. A copy of this letter should be attached to the Form 8832. A
copy is enclosed for that purpose.

     This ruling is contingent on A, B and C filing, within 120 days from the date of this

letter, to the extent necessary or appropriate, all required federal income tax returns and
information returns, including Form 8865, Return of U.S. Person With Respect to
Certain Foreign Partnerships, with respect to X (along with any amended returns)
consistent with the requested relief granted in this letter.

   Except as specifically set forth above, we express or imply no opinion concerning

the federal tax consequences of the facts described above under any other provision of
the Code and the regulations thereunder. 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.

   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.

  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.
PLR-108016-18 4

  In accordance with the power of attorney on file with this office, we are sending a

copy of this letter to X’s authorized representative.

                                 Sincerely,

                                 Associate Chief Counsel
                                 (Passthroughs & Special Industries


                              By: __________________________
                                 Richard T. Probst
                                 Senior Technician Reviewer, Branch 3
                                 Office of Associate Chief Counsel
                                 (Passthroughs & Special Industries)

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

cc: