Foreign entity receives 120 days to make a late disregarded-entity election

Plain-English summary

A foreign eligible entity failed to file Form 8832 on time to elect disregarded-entity status from its intended effective date. The IRS found that the entity satisfied the standards for regulatory-election relief and granted 120 days to file the election. The entity and its owner also had to file all required original or amended returns for open years consistently with the deemed liquidation caused by the classification change, including Form 8858. The ruling further stated that the election would be ignored when computing a U.S. shareholder's section 965 elements if recognizing it would change those amounts.

Ruling snapshot

• Question: May a foreign eligible entity make a late election to be disregarded as separate from its owner for federal tax purposes?
• Outcome: approved, with a 120-day filing period and consistent-return conditions
• 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: 202005009 Third Party Communication: None
Release Date: 1/31/2020 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:B03
PLR-109725-19
Date:
October 21, 2019

                                                LEGEND

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

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

D1 = ----------------------------

D2 = ----------------------

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

This letter responds to a letter dated April 23, 2019, and subsequent correspondence,
submitted on behalf of Y by its 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 classified as a disregarded entity for Federal tax
purposes.

                                                 FACTS

The information submitted states that Y was formed on D1 under the laws of Country. Y
was a foreign entity eligible to elect to be classified as a disregarded entity for federal
tax purposes. However, Y failed to timely file Form 8832, Entity Classification Election,
to be classified as a disregarded entity for federal tax purposes effective D2.

                                       LAW AND ANALYSIS

PLR-109725-19 2

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.

Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of time to
make a regulatory election, or a statutory election (but no more than six 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.

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 an election. Section
301.9100-2 provides automatic extensions of time for making certain elections. Section

PLR-109725-19 3

301.9100-3 provides extensions of time for regulatory elections that do not meet the
requirements of § 301.9100-2.

Section 301.9100-3(a) provides that requests 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 the taxpayer
acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.

                                  CONCLUSION

Based solely on the facts and representations submitted, we conclude that Y has
satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Consequently, Y is
granted an extension of time of one hundred twenty (120) days from the date of this
letter to elect under § 301.7701-3 to be classified as a disregarded entity effective D2.
Y must file Form 8832 within the extension period with the appropriate service center,
with a copy of this letter attached.

This ruling is contingent on Y and its owner filing within 120 days of the date of this
letter all required federal income tax and information returns (including amended
returns) for all open years consistent with the requested relief (including the application
of § 301.7701-3(g)(1)(iii)). 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 this form reflects the consequences of the relief granted in this letter. A copy
of this letter should be attached to any such returns.

If applicable, this disregarded entity election is disregarded for purposes of determining
the amounts of all section 965 elements of the United States shareholder 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).

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 for the specific ruling 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.

PLR-109725-19 4

This ruling is directed only to the taxpayer requesting it. According to § 6110(k)(3) of
the Code, this ruling may not be used or cited as precedent.

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.

Under a power of attorney on file with this office, we are sending a copy of this letter to
Y’s authorized representatives.

                                          Sincerely,

                                          Associate Chief Counsel
                                          (Passthroughs & Special Industries)



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

Enclosures: Copy of this letter
Copy of this letter for § 6110 purposes

cc: