Foreign entity received 120 days for late disregarded-entity election

Plain-English summary

A foreign eligible entity intended to be treated as a disregarded entity from a specified date but inadvertently failed to file Form 8832 on time. The IRS found that the requirements for discretionary late-election relief were satisfied and granted 120 days to file the form with the requested effective date. The relief was conditioned on the entity’s owner filing all required returns for open years consistently with disregarded-entity treatment, including applicable foreign information returns. 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?
• Outcome: approved, with 120 days to file Form 8832 and all required consistent returns
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, and 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: 201940005                                                Third Party Communication: None
Release Date: 10/4/2019                                          Date of Communication: Not Applicable
Index Numbers:7701.00-00, 9100.00-00,
               9100.31-00                                        Person To Contact:
                                                                 ----------------------, ID No. ----------------
-------------------------                                        Telephone Number:
--------------------------------------                           --------------------
---------------------------------                                Refer Reply To:
------------------------------------------------------           CC:PSI:B3
                                                                 PLR-107031-19
                                                                 Date:
                                                                 July 02, 2019


                                                     Legend

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

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

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


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

        This letter responds to a letter dated March 27, 2019, submitted on behalf of X
by its authorized representatives, requesting an extension of time under § 301.9100-3 of
the Procedure and Administration Regulations to file an election under § 301.7701-3 to
be treated as a disregarded entity for federal tax purposes.

                                                         Facts

       The information submitted discloses that X was organized on Date under the
laws of Country. X intended to be classified as a disregarded entity effective Date.
However, due to inadvertence, Form 8832, Entity Classification Election, was not timely
filed.

                                              Law and Analysis

        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

PLR-107031-19                                  2

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 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 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 can not be more than 75 days prior to the date on which the election is
filed and can not be more than 12 months after the date on which the election is filed. If
an election specifies an effective date more than 75 days prior to the date on which the
election is filed, it will be effective 75 days prior to the date it was filed.

        Section 301.9100-1(c) provides that the Commissioner in exercising the
Commissioner’s discretion may grant a reasonable extension of time under the rules set
forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory
election (but not 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) provides that the term “regulatory election” includes an
election whose due date is prescribed by a regulation published in the Federal Register.

      Section 301.9100-2 provides the standards the Commissioner will use to
determine whether to grant an automatic extension of time for making certain elections.

       Section 301.9100-3 provides the guidelines for granting extensions of time for
making elections that do not meet the requirements of § 301.9100-2. Section 301.9100-
3(a) provides that requests for relief subject to § 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 the taxpayer acted reasonably

PLR-107031-19                                  3

and in good faith, and the grant of relief will not prejudice the interests of the
Government.

                                         Conclusion

        Based solely on the facts submitted and the representations made, we conclude
that X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result, we
grant X an extension of time of one hundred twenty (120) days from the date of this
letter to file Form 8832 with the appropriate service center to elect to be classified as a
disregarded entity effective Date. A copy of this letter should be attached to the Form
8832.

        This ruling is contingent on the owner of X 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) Form 5471, Information
Return of U.S. Persons With Respect to Foreign Corporations, (ii) Form 8865,
Information Return of U.S. Persons With Respect to Foreign Disregarded Entities
(FDEs) and Foreign Branches (FBs), and (iii) Form 8858, Return of U.S. Persons With
Respect to 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.

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

       Except as specifically set forth above, we express or imply no opinion concerning
the federal tax consequences of the facts of this case under any other provision of the
Code. 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.

       In addition, 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.

      We are directing the ruling only to the taxpayer who requested 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.

PLR-107031-19                               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.


                                         Sincerely,
                                         Associate Chief Counsel
                                        (Passthroughs & Special Industries)


                                     By: _______________________
                                         Wendy L. Kribell
                                         Senior Counsel, Branch 3
                                         Office of the Associate Chief Counsel
                                         (Passthroughs & Special Industries)


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