Late-election relief for a foreign entity to switch from corporation to disregarded status

Plain-English summary

A single-owner foreign entity whose members all had limited liability defaulted to being treated as an association taxable as a corporation for U.S. federal tax purposes. The owner intended for it to be a disregarded entity instead but failed to timely file Form 8832 to make that check-the-box election. The entity asked the IRS for a late-election extension under Treasury Regulation § 301.9100-3, representing that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS agreed and granted 120 days to file Form 8832 electing disregarded-entity status effective the intended date.

Ruling snapshot

• Question: May a foreign entity that defaulted to corporate classification get a late-election extension to be a disregarded entity?
• Outcome: Approved (120-day extension granted)
• Key authorities: Treas. Reg. §§ 301.9100-1 and 301.9100-3; Treas. Reg. § 301.7701-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202052008
Release Date: 12/24/2020
Index Numbers: 7701.00-00, 9100.00-00, 9100.31-00

Third Party Communication: None
Date of Communication: Not Applicable

Person To Contact:
ID No.
Telephone Number:
Refer Reply To: CC:PSI:B03
PLR-108505-20

Date: September 28, 2020

LEGEND

X =
Country =
Date 1 =

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

   This letter responds to a letter dated January 29, 2020 submitted on behalf of X

by X's 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 treated as a disregarded entity for U.S. federal income tax purposes.

                                             FACTS

   According to the information submitted, X was formed on Date 1 under the laws

of Country. X states that under § 301.7701-3(b)(2), X is a foreign eligible entity with a
single owner and limited liability and its default classification is an association taxable as
a corporation for U.S. federal tax purposes. X intended to be classified as a
disregarded entity for U.S. federal tax purposes effective Date 1. However, X did not
timely file Form 8832, Entity Classification Election, to elect to be classified as a
disregarded entity effective Date 1.

   X represents that it acted reasonably and in good faith. Further, X represents

that the interests of the Government will not be prejudiced for the taxable years affected
by the election by granting the relief sought.

                               LAW AND ANALYSIS

    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) provides guidance on the classification of a foreign

eligible entity for federal tax purposes. Generally, a foreign eligible entity is treated as
an association taxable as a corporation if all members have limited liability, unless the
entity makes an election to be treated otherwise. If the foreign eligible entity has only
one owner, it may elect to be treated as a disregarded entity pursuant to the rules in
§ 301.7701-3(c).

    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 cannot be more than 12
months after the date on which 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 an
election. Section 301.9100-2 provides the standards the Commissioner will use to
determine whether to grant an 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 the taxpayer provides 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 information submitted and the representations made, we

conclude that X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. 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 classified as a disregarded
entity for U.S. federal tax purposes, effective Date 1. A copy of this letter should be
attached to the Form 8832.

   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.

  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 a

copy of this letter to X's authorized representatives.

                                    Sincerely,

                                    Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes

cc: