Foreign entity received 120 days for late disregarded-entity election

Plain-English summary

A foreign eligible entity intended to be classified as a disregarded entity from its formation date but inadvertently failed to timely file Form 8832. The IRS found the discretionary extension requirements satisfied and granted the entity and its owner 120 days to file the election. They also had to file any required original or amended returns consistently with the retroactive classification, including Forms 8858 and the deemed liquidation consequences. The election would be ignored for section 965 calculations if it otherwise changed a U.S. shareholder’s section 965 elements.

Ruling snapshot

• Question: May the foreign entity make a late election to be classified as a disregarded entity from its formation date?
• Outcome: approved, with 120 days to file Form 8832 and all consistent returns
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, and 301.9100-1 through 301.9100-3; Treas. Reg. § 1.965-4(c)(2)

Full text (IRS public release)

Internal Revenue Service                                  Department of the Treasury
                                                          Washington, DC 20224

Number: 201937015                                         Third Party Communication: None
Release Date: 9/13/2019                                   Date of Communication: Not Applicable
Index Number: 9100.31-00
                                                          Person To Contact:
-----------------------------------                       --------------------, ID No. -----------------
--------------------                                      Telephone Number:
---------------------------                               ---------------------
------------------------------                            Refer Reply To:
                                                          CC:PSI:03
                                                          PLR-136052-18
                                                          Date:
                                                          June 07, 2019




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

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

Country           =        --------

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


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

      This letter responds to a letter dated December 1, 2018, and subsequent
correspondence, submitted on behalf of X, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to make an election
under § 301.7701-3 for Y to be classified as a disregarded entity for federal tax
purposes.

                                                     FACTS

       The information submitted states that Y was formed on Date 1 under the laws of
Country. X represents that, as of Date 1, Y was a foreign entity eligible to be classified
as a disregarded entity for federal tax purposes. However, due to inadvertence, no
Form 8832, Entity Classification Election, was timely filed to elect to classify Y as a
disregarded entity effective Date 1.

                                            LAW AND ANALYSIS

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        Section 301.7701-3(a) provides, in part, 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 as provided in
§ 301.7701-3. An eligible entity with at least two members can elect to be classified as
either an association (and thus a corporation under § 301.7701-2(b)(2)) 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)(i) provides that, except as provided in § 301.7701-
3(b)(3), unless the entity elects otherwise, a foreign eligible entity is: (A) a partnership if
it has two or more 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(b)(2)(ii) provides, in part, that for purposes of § 301.7701-3(b)(2)(i),
a member of a foreign eligible entity has limited liability if the member has no personal
liability for the debts of or claims against the entity by reason of being a member.

       Section 301.7701-3(c)(1)(i) provides, in part, that, except as provided in
§ 301.7701-3(c)(1)(iv) and (v), 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 with
the service center designated on Form 8832.

         Section 301.7701-3(c)(1)(iii) provides, in part, that an election made under
§ 301.7701-3(c)(1)(i) will be effective on the date specified by the entity on Form 8832
or on the date filed if no such date is specified on the election form. The effective date
specified on Form 8832 cannot be more than 75 days prior to the date on which the
election is filed and cannot be more than 12 months after the date on which the election
is filed.

       Section 301.7701-3(g)(1)(iii) provides that if an eligible entity classified as an
association elects under § 301.7701-3(c)(1)(i) to be disregarded as an entity separate
from its owner, the following is deemed to occur: The association distributes all of its
assets and liabilities to its single owner in liquidation of the association.

       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 (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

PLR-136052-18                             3

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.

       Section 301.9100-3(a) provides that a request for relief under § 301.9100-3 will
be granted when the taxpayer provides the evidence (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that (1) the
taxpayer acted reasonably and in good faith, and (2) the grant of relief will not prejudice
the interests of the Government.

                                      CONCLUSION

        Based solely on the information submitted and representations made, we
conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
As a result, X and Y are 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 classify Y as a
disregarded entity effective Date 1. A copy of this letter should be attached to the Form
8832.

        This ruling is contingent on X and Y filing, within 120 days from the date of this
letter, any required returns (including amended returns) consistent with the requested
relief being effective on Date 1 (including the application of § 301.7701-3(g)(1)(iii)). To
the extent appropriate, these returns or amended returns must include, but are not
limited to, 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 or
amended returns.

        We express no opinion concerning the assessment of any interest, additions to
tax, additional amounts, or penalties for failure to file a timely income tax or information
return with respect to any taxable year that may be affected by this ruling. For example,
we express no opinion as to whether a taxpayer is entitled to relief from any penalty on
the basis that the taxpayer had reasonable cause for failure to file timely any income tax
or information returns.

       Except as expressly provided herein, we express or imply no opinion concerning
the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. 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.

        If applicable, this election is disregarded for purposes of determining the amounts
of all section 965 elements of all United States shareholders of Y if the election
otherwise would change the amount of any section 965 element of any such United
States shareholder. See § 1.965-4(c)(2).

PLR-136052-18                           4


       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 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 and 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



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