IRS grants a foreign entity more time to elect corporate classification

Plain-English summary

A foreign eligible entity intended to change from partnership classification to an association taxable as a corporation, but it did not file Form 8832 on time because of inadvertence. The entity represented that it would have made the election by the original deadline regardless of the Tax Cuts and Jobs Act and related regulations. The IRS found that the entity met the reasonable-cause standards in the § 301.9100 regulations. It granted 120 days to file Form 8832 with the requested effective date and required consistent returns for all open years. The IRS also stated that the election would be disregarded for certain IRC § 965 calculations if it otherwise changed a United States shareholder's § 965 elements.

Ruling snapshot

• Question: Could the foreign eligible entity receive extra time to file Form 8832 electing classification as an association taxable as a corporation?
• Outcome: Approved.
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, and 301.9100-3; IRC § 965.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202053003 Third Party Communication: None
Release Date: 12/31/2020 Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
9100.31-00 Person To Contact:
----------------, ID No. ----------
---------------------------------------- Telephone Number:
-------------------- --------------------
-------------------------- Refer Reply To:
--------------------------------- CC:PSI:01
PLR-108486-20
Date:
September 28, 2020

Legend

Company = ----------------------------------------------
------------------------

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

Date 1 = ------------------

Date 2 = -----------------

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

This letter responds to a letter dated March 4, 2020, submitted on behalf of Company 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 an association taxable as a corporation for federal tax purposes.

FACTS

The information submitted states that Company, a foreign eligible entity was formed
under the laws of Country and made an initial entity classification election to be treated
as a partnership as of its date of formation on Date 1. Company intended to elect to
change its classification to an association taxable as a corporation effective Date 2.
However, due to inadvertence, a Form 8832, Entity Classification Election, was not
timely filed for Company to be classified as a disregarded entity effective Date 2.
PLR-108486-20 2

Taxpayer represents that if not for inadvertence, Company would have made the
election to be treated as an association taxable as a corporation as of the election due
date regardless of the enactment of the Tax Cuts and Jobs Act (TCJA) and the
issuance of regulations relating to the TCJA.

LAW

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 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 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. If an
election specifies an effective date more than 75 days prior to the date on which the
election is filed, it will be effective 75 days prior to the date it was filed.

Section 301.9100-1(c) provides that the Commissioner in exercising the
Commissioner’s discretion may grant a reasonable extension of time under the rules set
forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory
election (but not 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.
PLR-108486-20 3

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 guidelines for granting extensions of time for making
elections that do not meet the requirements of § 301.9100-2. Section 301.9100- 3(a)
provides that requests for relief subject to § 301.9100-3 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 facts submitted and the representations made, we conclude that
Company has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result,
we grant Company an extension of time of one hundred twenty (120) days from the date
of this letter to file Form 8832 with the appropriate service center to elect to be classified
as an association taxable as a corporation effective Date 2. A copy of this letter should
be attached to the Form 8832.

This ruling is contingent on Company filing within 120 days of this letter all required
returns for all open years consistent with the requested relief. These returns may
include, but are not limited to, the following forms: (i) Form 5471, Information Return of
U.S. Persons With Respect to Certain Foreign Corporations, (ii) Form 8865, Return of
U.S. Persons With Respect to Certain Foreign Partnerships, and (iii) Form 8858,
Information Return of U.S. Persons With Respect to Foreign 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, the election to classify Company as an association taxable as a
corporation is disregarded for purposes of determining the amounts of all section 965
elements of all United States shareholders of Company 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).

Except as specifically set forth 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.

In addition, 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.
PLR-108486-20 4

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.

We are directing the ruling only to the taxpayer who requested it. Section 6110(k)(3) of
the Code provides that it 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.

In accordance with a power of attorney on file with this office, we are sending a copy of
this letter ruling to your authorized representatives.

                                  Sincerely,

                                  HOLLY PORTER
                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)



                                  /s/ Laura C. Fields


                                  By Laura C. Fields
                                  Senior Technician Reviewer, Branch 1
                                  Office of Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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

cc: