Foreign entity receives 120 days to make a late disregarded-entity election

Plain-English summary

A foreign entity with one owner intended to be treated as disregarded for U.S. federal tax purposes from the date it incorporated, but it did not timely file Form 8832. Its owner consistently reported all of the entity's income on the owner's returns, and the entity represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS found the Section 9100 requirements satisfied and granted 120 days to file Form 8832 electing disregarded-entity status effective on the intended date. The ruling notes that the election may be disregarded when calculating Section 965 elements if it otherwise would change those amounts.

Ruling snapshot

• Question: Could the foreign eligible entity file a late Form 8832 to be treated as disregarded from its intended effective date?
• Outcome: Approved, with 120 days to file the election.
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 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: 202132007 Third Party Communication: None
Release Date: 8/13/2021 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:B03
------------------ PLR-128324-20
Date:
May 07, 2021

                                               LEGEND

X = ------------------------------------------------------------------------------------------------
-----------------------
Y = ------------------------------------------------------------------------------------------------
-----------------------
Z = -------------------------------
Date 1 = ------------------
Date 2 = --------------------------
Date 3 = --------------------------
State 1 = -------------
State 2 = -------------
Country = ---------------------

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

   This letter responds to a letter dated December 7, 2020, and subsequent

correspondence, 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 federal tax purposes.

                                                 FACTS

   According to the information submitted, Y was incorporated on Date 1 under the

laws of State 1 and elected to be treated as an S corporation. X was first formed as a
branch of Y in Country and all income or loss was reported on Y’s return. On Date 2, X
PLR-128324-20 2

was incorporated under the laws of Country and has since filed tax returns with Country.
Y intended for X to be classified as a disregarded entity for federal tax purposes but
failed to timely file a Form 8832, Entity Classification Election, to treat X as a
disregarded entity effective Date 2. Y consistently treated X as a disregarded entity for
federal tax purposes reporting all of X income on Y’s returns. On Date 3, all of its
interests in Y were sold to Z, a State 2 limited liability company.

    X represents that as of Date 2, it was an eligible entity having a single owner and

its default entity classification for U.S. tax purposes was an association taxable as a
corporation. X seeks relief to elect to be treated as a disregarded entity as of Date 2
consistent with how Y and X understood and reported X’s entity classification.

   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) 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.

    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.
PLR-128324-20 3

   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 and elect to be classified as a
disregarded entity federal tax purposes, effective Date 2. 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.

    If applicable, the entity classification election 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).

   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.
PLR-128324-20 4

  In accordance with the power of attorney on file with this office, we are sending a

copy of this letter to X's authorized representative.

                                     Sincerely,

                                     Associate Chief Counsel
                                     (Passthroughs & Special Industries)




                                  By:_________________________
                                    Wendy Kribell
                                    Senior Technician Reviewer, Branch 3
                                    Office of Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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

cc: