Foreign subsidiary received 120 days to elect disregarded status

Plain-English summary

A U.S. limited liability company formed a wholly owned foreign subsidiary and intended it to be treated as a disregarded entity from its formation date. The subsidiary did not timely file Form 8832, although the parent consistently reported it as disregarded. The parent represented that it acted reasonably and in good faith, was not using hindsight, and would not reduce its aggregate tax liability through late relief. The IRS granted the subsidiary 120 days to file the election retroactively. Relief was conditioned on the owner filing all required returns for open years consistently with disregarded-entity treatment.

Ruling snapshot

• Question: Could the foreign subsidiary make a late election to be treated as a disregarded entity from its formation date?
• Outcome: approved, subject to filing the election and consistent open-year returns within 120 days
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-2, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201930021                                              Third Party Communication: None
Release Date: 7/26/2019                                        Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
              9100.31-00                                       Person To Contact:
                                                               --------------------, ID No. ------------------
---------------------------------------------------------      Telephone Number:
------------------------------------------                     ----------------------
------------------------------------------                     Refer Reply To:
----------------------------------                             CC:PSI:01
                                                               PLR-135421-18
                                                               Date:
                                                               April 23, 2019

Legend

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

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

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

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

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

This ruling is in response to your request dated December 7, 2018, submitted by X 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 United States limited liability company.
On Date 1, X's wholly owned foreign subsidiary, Y, was formed under the laws of
Country.

X represents that it intended Y 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.

The ruling in this letter is based on 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(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 X's authorized representatives

                                       Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)

                                    By: Laura C. Fields

                                    Laura C. Fields
                                       Senior Technician Reviewer, Branch 1
                                       (Passthroughs and Special Industries)

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