IRS grants a foreign insurance company 60 days to perfect its election for domestic tax treatment

Plain-English summary

A foreign insurance company and its U.S. parent had consistently filed as though the insurer had validly elected under § 953(d) to be treated as a domestic corporation and member of the parent's consolidated group. The company's tax professional had timely filed an election statement, but years later the parent could not find documentation that the IRS had approved the election. The insurer requested an extension under Treas. Reg. § 301.9100-3. The IRS found good faith and no prejudice to the government, and gave the insurer 60 days to make the election under Rev. Proc. 2003-47 with its original effective date. Relief was conditioned on the election not reducing aggregate tax liability, and the IRS did not decide whether the insurer was otherwise eligible for the election or how it should be classified as an entity.

Ruling snapshot

• Question: Could the foreign insurer receive additional time to make a § 953(d) election to be treated as a domestic corporation from its original intended date?
• Outcome: approved (a 60-day extension was granted, subject to the aggregate-tax-liability condition)
• Key authorities: IRC §§ 953(d), 6072(b), 6662; Treas. Reg. §§ 301.9100-1, 301.9100-3; Notice 89-79; Rev. Proc. 2003-47

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202051007                                             [Third Party Communication:
 Release Date: 12/18/2020                                      Date of Communication: Month DD, YYYY]
 Index Number: 953.06-00, 9100.22-00
                                                               Person To Contact:
 -----------------------------                                 -----------------, ID No. ------------------
 --------------------                                          Telephone Number:
 ----------------------------------------                      --------------------
 --------------------                                          Refer Reply To:
 -----------------------------------                           CC:INTL:B02
                                                               PLR-112094-20
                                                               Date:
                                                               September 18, 2020




                 TY: -------


Legend
 Taxpayer                             = -----------------------------------------------------
                                        -------------------------------------
                                        ------------------------
 Company X                            = --------------------------------
                                        ------------------------
                                                                                                        -
 Date 1                               = ----------------------
 Year 2                               = -------
                                                                                                        -
 Country Y                            = ------------
 Tax Professional Z                   = -------------------
 Date 3                               = ----------------------




Dear --------------

      This is in response to a letter received by our office on May 22, 2020, submitted
on behalf of Taxpayer by its parent company, Company X, requesting an extension of
time under Treas. Reg. § 301.9100-3 to make the election provided under section
953(d) for Taxpayer’s taxable year ending Date 1.

      The ruling contained in this letter is predicated upon facts and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
PLR-112094-20                                  2

by an appropriate party. This office has not verified any of the material submitted in
support of the request for a ruling. Verification of the factual information,
representations, and other data may be required as part of the audit process.

FACTS

       On Date 1, Taxpayer was organized under the laws of Country Y and is indirectly
wholly owned by Company X. Company X is the parent company of an affiliated group
which files a consolidated federal income tax return. Taxpayer will be a member of
such affiliated group as a result of its election under section 953(d).

        Taxpayer represents that at all relevant times, it has met the requirements to be
taxed as an insurance company for federal income tax purposes. Taxpayer represents
that in Year 2, Tax Professional Z, Vice President of Tax for Company X, timely filed a
section 953(d) election statement to be treated as a domestic corporation for federal
income tax purposes as of Date 1. Tax Professional Z was a qualified in-house tax
professional, on whom Company X and Taxpayer relied to ensure that the section
953(d) election statement was properly filed and that all necessary elements required to
effect the election were completed. Taxpayer has submitted supporting documentation
that shows Tax Professional Z timely filed a section 953(d) election statement.

      Taxpayer represented that, as part of Company X’s consolidated group since
Date 1, Company X has always treated Taxpayer as if a valid section 953(d) election
were made to treat Taxpayer as a domestic corporation and member of the
consolidated group. Taxpayer and Company X have filed consistently with Taxpayer
having made a section 953(d) election for all affected tax years. According to IDRS
records, the Internal Revenue Service has treated Taxpayer as a domestic corporation
and member of Company X’s consolidated group since Date 1 as well. However, in
Date 3, Company X failed to locate any documentation in support of an approval from
the IRS of Taxpayer’s section 953(d) election.

        Taxpayer represents that it does not seek to alter a return position for which the
accuracy-related penalty has been or could have been imposed under section 6662 at
the time Taxpayer requested relief, and the new position requires or permits a
regulatory election for which relief is requested. Taxpayer represents that it has not
used hindsight to seek an extension of time to make the election. Taxpayer represents
that granting relief will not result in a lower tax liability than it would have had if it had
filed the section 953(d) timely.

LAW AND ANAYLSIS

       Under section 953(d), certain foreign insurance companies may elect to be
treated as domestic corporations for U.S. tax purposes. The substantive and
procedural rules for making a section 953(d) election are contained in Notice 89-79,
1989-2 C.B. 392, and Rev. Proc. 2003-47, 2003-2 C.B. 55. Rev. Proc. 2003-47
provides that the election must be filed by the due date prescribed in section 6072(b)
PLR-112094-20                                 3

(including extensions) for the U.S. income tax return that is due if the election becomes
effective. Rev. Proc. 2003-47, section 4.04(2). In addition, an electing corporation must
use the calendar year as its annual accounting period for U.S. tax purposes, unless it
joins in the filing of a consolidated return and adopts the parent corporation’s tax year.
Notice 89-79, section 1. Rev. Proc. 2003-47 fixes the time to make the election under
section 953(d). Therefore, the Commissioner has discretionary authority under Treas.
Reg. § 301.9100-1(c) to grant Taxpayer an extension of time, provided that Taxpayer
satisfies the standards set forth under Treas. Reg. § 301.9100-3(a).

        Treas. Reg. § 301.9100-3(a) provides that requests for relief subject to this
section will be granted when the taxpayer provides the evidence (including affidavits
described in Treas. Reg. § 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.

        Treas. Reg. § 301.9100-3(b)(1) provides that except as provided in paragraphs
(b)(3)(i) through (iii) of that section, a taxpayer is deemed to have acted reasonably and
in good faith if it meets one of the conditions described in Treas. Reg. § 301.9100-
3(b)(1)(i) through (v):

       (i) Requests relief before the failure to make the regulatory
       election is discovered by the Internal Revenue Service;

       (ii) Failed to make the election because of intervening events beyond the
       taxpayer’s control;

       (iii) Failed to make the election because, after exercising reasonable diligence
       (taking into account the taxpayer’s experience and complexity of the return
       or issue), the taxpayer was unaware of the necessity for the election;

       (iv) Reasonably relied on the written advice of the Internal Revenue Service; or

       (v) Reasonably relied on a qualified tax professional, including a tax
       professional employed by the taxpayer, and the tax professional failed to
       make, or advise the taxpayer to make, the election.

       Further, the Commissioner will grant a reasonable extension of time to make a
regulatory election only when the interests of the Government will not be prejudiced by
the granting of relief. Treas. Reg. § 301.9100-3(c)(1). The interests of the Government
are prejudiced if granting relief would result in a taxpayer having a lower tax liability in
the aggregate for all taxable years affected by the election than the taxpayer would
have had if the election had been timely made (taking into account the time value of
money). Treas. Reg. § 301.9100-3(c)(1)(i).
PLR-112094-20                                  4

       Lastly, Treas. Reg. § 301.9100-1(a) cautions that granting an extension of time to
make an election is not a determination that the taxpayer is otherwise eligible to make
the election.

CONCLUSION

        Based on the facts and information submitted, we conclude that Taxpayer
satisfies Treas. Reg. § 301.9100-3(a). Taxpayer qualifies for an extension of time to
make the election under section 953(d). Taxpayer is deemed to have acted in good
faith, as defined by Treas. Reg. § 301.9100-3(b), and the grant of relief will not prejudice
the interests of the Government. Accordingly, Taxpayer is granted an extension of time
of 60 days from the date of this ruling letter to make the election provided by section
953(d), in accordance with the procedural rules set forth in Rev. Proc. 2003-47, to be
treated as a domestic corporation for federal income tax purposes effective for Date 1.

        The above extension of time is conditioned on Taxpayer’s tax liability (if any)
being not lower, in the aggregate, for all years to which the section 953(d) election
applies than it would have been if the election had been timely filed (taking into account
the time value of money). No opinion is expressed as to Taxpayer’s tax liability for the
taxable years involved. Further, the granting of the above extension is not a
determination that Taxpayer is otherwise eligible to make the section 953(d) election.
Treas. Reg. § 301.9100-1(a). Also, no ruling is granted with respect to Taxpayer’s
entity classification for federal income tax purposes.

      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, a copy of this
letter is being sent to your authorized representatives.



                                       Sincerely,

                                       /s/ Kristine Crabtree

                                       Kristine A. Crabtree
                                       Senior Technical Reviewer, Branch 2
                                       Office of Associate Chief Counsel (International)




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