IRS grants a foreign entity 120 days to make a late disregarded-entity election

Plain-English summary

A foreign eligible entity wholly owned by a foreign partnership intended to be disregarded for U.S. federal tax purposes from its formation date but failed to timely file Form 8832. It requested relief under Treas. Reg. § 301.9100-3. The IRS found the extension standards satisfied and gave the entity 120 days to file Form 8832 with the requested effective date. Relief was conditioned on the entity, its owner, and the owner's partners filing all required returns for open years consistently with disregarded-entity treatment, including Forms 8858 and amended returns where necessary. The IRS also stated that the election would be ignored for § 965 calculations if recognizing it would change a U.S. shareholder's § 965 elements. The extension did not determine whether the entity otherwise qualified to make the election.

Ruling snapshot

• Question: Could the foreign eligible entity make a late Form 8832 election to be disregarded from its intended effective date?
• Outcome: approved (a 120-day extension was granted, subject to consistent return and information-reporting filings)
• Key authorities: IRC §§ 965, 7701; Treas. Reg. §§ 1.965-4(c)(2), 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                          Department of the Treasury
                                                                   Washington, DC 20224

                                                                   Third Party Communication: None
Number: 202038006                                                  Date of Communication: Not Applicable
Release Date: 9/18/2020
                                                                   Person To Contact:
Index Numbers: 7701.00-00, 9100.00-00,                             ------------------------, ID No. -----------------
              9100.31-00                                           Telephone Number:
                                                                   --------------------
 ------------------------------------------------------------- Refer Reply To:
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 ----------------------------------------                      PLR-125264-19
                                                               Date:
 ------------------------------------------------------------- April 20, 2020
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Legend

X                 =         --------------------------------------------------------------
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Y                 =         ------------------------------------
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Country1          =        ---------------------------

Country2          =        ---------------------

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


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

       This letter responds to a letter dated October 18, 2019, submitted by your
authorized representative, requesting an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations for X to file an election under § 301.7701-3
to be a disregarded entity for federal tax purposes.

                                                     FACTS

      The information submitted states that X was formed by Y under the laws of
Country1 on Date. Y, a Country2 entity classified as a partnership for federal tax
purposes, wholly owns X. X represents that it is a foreign entity eligible to elect to be
disregarded as an entity separate from its owner for federal tax purposes as of Date.
PLR-125264-19                                  2

However, X failed to timely file Form 8832, Entity Classification Election, to be classified
as a disregarded entity for federal tax purposes effective Date.

                                   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)(2)(i) provides that, 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 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),
the 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 cannot be 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 (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 extensions 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
PLR-125264-19                                 3

(1) the taxpayer acted reasonably and in good faith, and (2) the grant 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 Form 8832 with the appropriate service center to elect to be disregarded as an entity
separate from its owner for federal tax purposes effective Date. A copy of this letter
should be attached to the Form 8832.

        This ruling is contingent on X and Y (along with Y’s owners) filing, within 120
days from the date of this letter, all required federal income tax returns and information
returns (including amended returns) for all open years consistent with the requested
relief. These returns must include, but are not limited to, Form 8858, Information Return
of U.S. Persons With Respect to Foreign Disregarded Entities and Foreign Branches,
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 classified as a disregarded entity effective 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. See § 1.965-4(c)(2) of
the Income Tax Regulations.

       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.

       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.
PLR-125264-19                                         4

      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: __________________________
                                              Mary Beth Carchia
                                              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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