Foreign entity receives late partnership-classification election

Plain-English summary

A foreign limited liability company formed as a joint venture intended to be treated as a foreign partnership for U.S. tax purposes. Because both members had limited liability, the default classification rules instead treated it as an association taxable as a corporation. The entity inadvertently failed to file Form 8832 on time but represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS granted 120 days to file the election with the intended effective date and any required consistent original or amended returns. The ruling did not grant penalty relief or determine whether the entity was otherwise eligible. It also stated that the election would be disregarded for Section 965 calculations if it otherwise changed a U.S. shareholder's Section 965 elements.

Ruling snapshot

• Question: Could the foreign eligible entity file a late Form 8832 electing partnership classification?
• Outcome: Approved for 120 days, subject to consistent return filings and the ruling's Section 965 limitation.
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-1 through 301.9100-3; Treas. Reg. § 1.965-4(c)(2)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202128005 Third Party Communication: None
Release Date: 7/16/2021 Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.31-00
Person To Contact:
------------------------------------------------------------ --------------------, ID No. -----------------
---------------------------- Telephone Number:
------------------------------ -------------------
------------------------------------------ Refer Reply To:
----------------------------- CC:PSI:03
PLR-126333-20
Date:
April 21, 2021

Legend

X: -----------------------------------------------------------------------------

Country: --------

Date: -----------------

A: ----------------

B: ---------------------------------------------------------------------------------------------------

              ------------------------

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

This responds to a letter dated October 20, 2020, submitted on behalf of X 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(c) for
X to be treated as a foreign partnership for U.S. federal tax purposes as of Date.

                                                FACTS

The information submitted states that X is a limited liability company formed under the
laws of Country on Date. X represents that X is a foreign entity eligible to elect to be
treated as a foreign partnership and was formed as a joint venture between A and B.
However, X inadvertently failed to timely file a Form 8832, Entity Classification Election,

PLR-126333-20 2

electing to treat X as a foreign partnership effective Date 1. Both A and B were
members with limited liability under the law of Country and thus X would be classified by
the default rules of section 301.7701-3(b)(2) as an association and treated as a
corporation for federal tax purposes.

X represents that it acted reasonably and in good faith. 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, 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, except as provided in § 301.7701-
3(c)(1)(iv) and (v), 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, in part, 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.

Section 301.7701-3(g)(1)(iii) provides that if an eligible entity classified as an
association elects under § 301.7701-3(c)(1)(i) to be disregarded as an entity separate
from its owner, the following is deemed to occur: The association distributes all of its
assets and liabilities to its single owner in liquidation of the association.

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

PLR-126333-20 3

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)
defines the term “regulatory election” as an election whose due date is prescribed by a
regulation published in the Federal Register, or a revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin.

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.

Section 301.9100-3(a) provides that a request for relief under § 301.9100-3 will be
granted when the taxpayer provides the 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 grant of relief will not prejudice
the interests of the Government.

                                 CONCLUSION

Based solely on the information submitted and 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 classify as a foreign partnership
effective Date. A copy of this letter should be attached to the Form 8832.

This ruling is contingent on X filing, within 120 days from the date of this letter, any
required returns (including amended returns) consistent with the requested relief being
effective on Date (including the application of § 301.7701-3(g)(1)(iii)). A copy of this
letter should be attached to any such returns or amended returns.

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. 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.

Except as expressly provided herein, we express or imply no opinion concerning the
federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. 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.

PLR-126333-20 4

If applicable, this election is disregarded for purposes of determining the amounts of all
section 965 elements of all United States shareholders of Y 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).

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 a power of attorney on file with this office, we are sending a copy of
this letter to X's authorized representatives.

                                 Sincerely,



                                 Richard T. Probst
                                 Senior Technician Reviewer, Branch 3
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosures (2):
Copy of this letter
Copy for 6110 purposes

cc: