Foreign entity gets 120 days for a late disregarded-entity election

Plain-English summary

A single-owner foreign eligible entity was classified by default as a corporation because its owner had limited liability. During a reorganization, the entity transferred its assets and liabilities to a newly converted corporation but failed to file Form 8832 for the intended disregarded-entity treatment. The IRS found that the entity met the reasonable-cause and no-prejudice standards and gave it 120 days to file the late classification election effective on the requested date. The entity and the transferee corporation also had to file all required returns from the reorganization year onward consistently within 120 days. The IRS did not decide whether the transaction qualified as an F reorganization, and the election would be disregarded if it changed any U.S. shareholder's section 965 elements.

Ruling snapshot

• Question: Could the foreign eligible entity make a late election to be disregarded as separate from its owner as part of its intended reorganization?
• Outcome: approved, subject to a 120-day election and consistent-return requirement
• Key authorities: IRC § 368(a)(1)(F); 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: 202002002                                            Third Party Communication: None
Release Date: 1/10/2020                                      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:B03
                                                             PLR-108357-19
                                                             Date:
                                                             October 07, 2019



                                                  LEGEND

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

A              = ----------------------------------------------

B              = -------------------------------------------------------------------------------------------------
                 -------

C              = --------------------------------------------------------------------------------------

D              = -----------------------------------------------------------------------------------------------

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

Year 1         = ------

Year 2         = ------

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

Date 2         = --------------------

Date 3         = ----------------

Date 4         = ----------------
PLR-108357-19                                  2


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

       This letter responds to a letter dated April 11, 2019, and subsequent
correspondence, submitted on behalf of X by X's authorized representative, 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

       According to the information submitted, X was formed in Year 1 under the laws of
Country. X represents that, under § 301.7701-3(b)(2), X is a foreign eligible entity with
a single owner and limited liability and its default classification is an association taxable
as a corporation for U.S. federal income tax purposes.

        On Date 1, X formed A, a wholly-owned domestic limited liability company, that
was treated as a disregarded entity for federal tax purposes. On Date 2, X and A
acquired three domestic limited liability companies, B, C, and D, which were also
treated as disregarded entities for federal tax purposes. X represents that in Year 2, X
and its subsidiaries underwent a reorganization. On Date 3, B converted into a
corporation and X contributed all of its assets and liabilities to B in exchange for the
equity of B, but inadvertently failed to file a Form 8832, Entity Classification Election,
effective Date 4 electing to be treated as a disregarded entity. X represents that it
intended the transaction to qualify as a reorganization under § 368(a)(1)(F).

                                   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
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.
PLR-108357-19                                3


       Section 301.7701-3(c) provides that an entity classification election must be filed
on Form 8832 and can be effective up to seventy-five (75) days prior to the date the
form is filed or up to twelve (12) months after the date on which 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) 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 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 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 (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer
acted reasonably and in good faith, and that granting relief will not prejudice the
interests of the government.

                                      CONCLUSION

        Based solely on the facts submitted and 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 make an entity
classification election to be treated as disregarded as an entity separate from its owner
by filing a Form 8832, effective Date 4, with the appropriate service center. A copy of
this letter should be attached to the election. A copy of this letter is attached for this
purpose.

       This ruling is contingent upon X and B filing within 120 days of this letter any and
all required Federal income tax and information returns from Year 2 to the present
consistent with the requested relief.

        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. Specifically, we express or imply no opinion as to whether the Year 2 transaction
qualified as a reorganization under § 368(a)(1)(F). In addition, § 301.9100-1(a)
PLR-108357-19                                4

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 X 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).

      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
copies of this letter to your authorized representatives.

       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:_________________________
                                      Caroline E. Hay
                                      Assistant to the Branch Chief, Branch 3
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)




Enclosures (2)
      A copy of this letter
      A copy for § 6110 purposes