A foreign entity that missed the deadline to be disregarded gets 120 days to file a late Form 8832

Plain-English summary

A single-owner business entity formed under the laws of a foreign country wanted to be treated as a "disregarded entity" for U.S. tax purposes, meaning it is ignored as separate from its owner and its income flows directly to that owner. By default, a foreign entity whose members all have limited liability is treated as a corporation unless it elects otherwise by filing Form 8832, the entity classification election. This entity intended disregarded treatment from its formation date but did not file Form 8832 on time. It asked the IRS for an extension under Treasury Regulation section 301.9100-3, representing that it acted reasonably and in good faith and that relief would not harm the government. The IRS granted 120 days from the date of the letter to file the late election effective on the formation date, contingent on the entity and its owners filing all consistent original or amended returns within the same 120 days. The IRS added a caveat: the election is disregarded for purposes of any section 965 (transition tax) amounts it would otherwise change. The IRS did not decide whether the entity otherwise qualifies to make the election.

Ruling snapshot

• Question: Should a foreign single-owner entity get more time to file a late election to be a disregarded entity?
• Outcome: Approved (120-day extension to file Form 8832 under Treas. Reg. § 301.9100-3, with a § 965 caveat)
• Key authorities: Treas. Reg. § 301.7701-3(b)(2), (c); Treas. Reg. §§ 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: 202145012
Third Party Communication: None
Release Date: 11/12/2021
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
Person To Contact:
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Telephone Number:
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CC:PSI:B03
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PLR-103319-21
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Date:
August 13, 2021

LEGEND
X = ------------------------------------------------------------------------------------------------
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Date 1 = ------------------
Country = ------------

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

This letter responds to a letter dated January 28, 2021 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) it is a foreign eligible entity 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 all taxable years affected by the election by granting the relief sought.
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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.

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 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 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.
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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.

This ruling is contingent on X and its owners filing within 120 days of the date of this letter all required original or amended information and tax returns for all open years consistent with the requested relief. A copy of this letter should be attached to any such returns.

If applicable, this election is disregarded for purposes of determining the amounts of all section 965 elements of all United States owners of X if the election otherwise would change the amount of any section 965 element of any such United States owner. 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 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.
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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:_______
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: