Foreign entity gets 120 days for a late corporate-classification election

Plain-English summary

A foreign eligible entity had filed an erroneous election to be treated as a partnership and sought to elect corporate tax status effective on the same redacted date. The entity represented that it acted reasonably and in good faith and that granting relief would not prejudice the government. The IRS gave it 120 days to file Form 8832 for retroactive treatment as an association taxable as a corporation. The relief also required the entity, its domestic LLC owner, and that owner's owners to file any necessary original or amended returns consistently within 120 days. If the election would change any U.S. shareholder's section 965 elements, it would be disregarded for computing those amounts.

Ruling snapshot

• Question: Could the foreign eligible entity replace an erroneous partnership election with a late election for corporate classification effective on the requested date?
• Outcome: approved, subject to 120-day election and consistent-return requirements
• 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

                                                                 Third Party Communication: None
Number: 202002003                                                Date of Communication: Not Applicable
Release Date: 1/10/2020
                                                                 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-108744-19
                                                                 Date:
                                                                 October 10, 2019




                                                       LEGEND

X                 =-----------------------------------------------
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Y                 =        -----------------------------------
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A                 =        ----------------------

B                 =         ---------------------------
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C                 =        -------------------------
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Country           =        -----------

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

N1                =        ---

N2                =        ---


Dear ------------:
PLR-108744-19                                  2

        This letter responds to a letter dated April 15, 2019, submitted on behalf of X by
its authorized representative, requesting an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations for X to file an entity classification election to
be treated as an association taxable as a corporation for federal tax purposes.

                                               FACTS

        The information submitted states that X was formed under the laws of Country on
Date. X is directly owned by Y and A. Y is a domestic limited liability company that
owns n1% of X. A is a citizen of Country, and owns the remaining n2% of X. Y, in turn,
is owned by B and C in equal shares. B and C are both citizens of the United States. X
represents that X is a foreign eligible entity that previously filed an erroneous entity
classification election to be treated as a partnership effective Date. X now seeks relief
to make a late entity classification election to be treated as an association taxable as a
corporation effective on Date.

       X represents that it acted in good faith and reasonably. Further, X represents
that the interests of the government will not be prejudiced for all taxable years affected
by the election by granting the relief sought.

                                   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 (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) 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(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 or claims against
the entity by reason of being a member.

        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 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
PLR-108744-19                                  3

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 301.9100-1(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 (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 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, X 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 an
association taxable as a corporation for federal tax purposes effective Date. A copy of
this letter should be attached to the Form 8832. A copy is enclosed for that purpose.

       This ruling is contingent on X and Y (along with Y’s owners) filing, within 120
days from the date of this letter, to the extent necessary or appropriate, all required
federal income tax returns and information returns (including amended returns)
consistent with the requested relief granted in this letter. A copy of this letter should be
attached to any such returns.

        If applicable, X’s election to be treated as an association taxable as a corporation
effective on Date 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
of X. See § 1.965-4(c)(2).
PLR-108744-19                                 4

       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.

       We express no opinion concerning the assessment of any interest, additions to
tax, additional amounts, or penalties for failure to file a timely 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.

       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 power of attorney on file with this office, we are sending
copies of this letter to X’s authorized representatives.

                                       Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries


                                   By: __________________________
                                      Adrienne M. Mikolashek
                                      Branch Chief, Branch 3
                                      Office of Associate Chief Counsel
                                      (Passthroughs & Special Industries)

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