IRS grants foreign entity late disregarded-entity election

Plain-English summary

A foreign eligible entity wholly owned by a domestic partnership inadvertently failed to file Form 8832 electing disregarded-entity status from its formation date. The IRS granted 120 days to file the election and all required consistent returns, including Forms 8858 by the entity, its owner, and the owner’s owners as appropriate. The relief did not establish substantive eligibility, did not address late-filing penalties, and was subject to the section 965 limitation.

Ruling snapshot

• Question: Should the foreign eligible entity receive section 301.9100-3 relief for a late Form 8832 disregarded-entity election?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-3; § 1.965-4(c)(2)

Full text (IRS public release)

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Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 202012007
Release Date: 3/20/2020

                                                           Third Party Communication: None

Index Number: 7701.00-00, 9100.00-00,
Date of Communication: Not Applicable
9100.31-00
Person To Contact:
----------------------------- ----------------------, ID No. -----------------
------------------------------------------------------ Telephone Number:
------------------------------- -------------------
Refer Reply To:

                                                           CC:PSI:B03
                                                           PLR-119645-19
    ---------------------------------                      Date:
   ---------------                                         December 10, 2019
   ------------------------
   ---------------------


                                                LEGEND

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

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

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

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

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

   This letter responds to a letter dated August 19, 2019, and subsequent

correspondence, 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 disregarded as
an entity separate from its owner for federal tax purposes.

                                                         FACTS

   The information submitted states that X is a limited liability company formed

under the laws of Country on Date. X is wholly owned by Y, a domestic limited liability
company treated as a partnership for federal tax purposes. X represents that X is a
PLR-119645-19 2

foreign entity eligible to elect to be treated as a disregarded entity. However, X
inadvertently failed to timely file a Form 8832, Entity Classification Election, electing to
be treated as disregarded as an entity separate from its owner effective 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
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.
PLR-119645-19 3

   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
disregarded as an entity separate from its owner 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. These returns include, but are
not limited to, Forms 8858, Information 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, X’s election to be treated as disregarded as an entity separate from

its owner 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).

   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
PLR-119645-19 4

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: __________________________
                                 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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