Two foreign entities received 120 days to make late disregarded-entity elections

Plain-English summary

A domestic limited partnership formed two foreign limited liability companies in a tiered ownership structure. The two foreign entities intended to be disregarded for federal tax purposes from their formation date but did not timely file Forms 8832. The IRS found that the requirements for discretionary late-election relief were satisfied and granted 120 days to file the elections. The relief was conditioned on the entities and their owner timely filing all required returns for open years, including Forms 8858, consistently with the requested classification.

Ruling snapshot

• Question: May the two foreign eligible entities make late elections to be disregarded as separate from their owners effective from their formation date?
• Outcome: approved, with 120 days to file Forms 8832 and consistent returns for all open years
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

                                                               Third Party Communication: None
Number: 201934007                                              Date of Communication: Not Applicable
Release Date: 8/23/2019
                                                               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-135574-18
-----------------------------------                           PLR-135575-18
                                                              Date:
-------------------------------------                         May 23, 2019
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Legend

X1                =        -------------------------
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X2                =         --------------------------------------
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Y                 =         -----------------------------------------------------------------------------------------
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Country           =        ----------------------

State             =        ------------

Date1             =        ------------------


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

       This letter responds to a letter dated November 13, 2018, submitted by Y on
behalf of X1 and X2 and requesting an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations for X1 and X2 to file entity classification
elections to be disregarded as entities separate from their owners for federal income tax
purposes.

                                           FACTS

        The information submitted states that X1 and X2 were formed as limited liability
companies by Y under the laws of Country on Date1. Y is a domestic limited
partnership formed under the laws of State. Y wholly owns X1, and X1 wholly owns X2.
X1 and X2 represent that they are foreign eligible entities eligible to elect to be
disregarded as entities separate from their owners for federal tax purposes as of Date1.
However, X1 and X2 failed to timely file Forms 8832, Entity Classification Election, to be
classified as disregarded entities for federal tax purposes effective Date1.

                                   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. 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 301.7701-3(g)(1)(ii) provides that if an eligible entity classified as an
association elects under § 301.7701-1(c)(1)(i) to be classified as a partnership, the
following is deemed to occur: The association distributes all of its assets and liabilities to
its shareholders in liquidation of the association, and immediately thereafter, the
shareholders contribute all of the distributed assets and liabilities to a newly formed
partnership.

       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
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.

                                     CONCLUSION

        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, X1 and X2 are granted an extension of time of 120 days from the date of
this letter to file Forms 8832 with the appropriate service center to elect to be
disregarded as entities separate from their owners for federal tax purposes effective
Date1. A copy of this letter should be attached to each Form 8832.

        This ruling is contingent on X1, X2, and Y filing, within 120 days from the date of
this letter, all required federal income tax returns and information returns (including
amended returns) for all open years consistent with the requested relief. These returns
must include, but are not limited to, Form 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, 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.

      In accordance with the powers of attorney on file with this office, we are sending
copies of this letter to X1’s and X2’s authorized representatives.

                                      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