IRS grants 120 days to file a late check-the-box election making a foreign subsidiary a disregarded entity

Plain-English summary

Under the "check-the-box" rules (Treas. Reg. § 301.7701-3), an eligible business entity can choose how it is taxed by filing Form 8832. A foreign entity that does not elect otherwise defaults to being taxed as a corporation, but a single-owner entity can elect instead to be "disregarded," meaning it is ignored as separate from its owner. Here a member of a U.S. consolidated group intended to elect to have its foreign subsidiary treated as a disregarded entity as of a particular date, but never actually filed the Form 8832. The group had nonetheless reported all of the subsidiary's tax items as if the election were in place. The parent asked the IRS for more time under § 301.9100-3, which lets the Commissioner grant late-election relief when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. The IRS granted 120 days to file the Form 8832 effective the intended date, conditioned on the owners filing all required (including amended) returns, such as Forms 8865, consistent with the relief. The IRS noted the usual caveat that this election is disregarded for purposes of any § 965 amounts under Treas. Reg. § 1.965-4(c)(2).

Ruling snapshot

• Question: Will the IRS grant more time under § 301.9100-3 to file a late Form 8832 electing to treat a foreign eligible entity as disregarded from its owner?
• Outcome: Approved (120-day extension granted, subject to consistent-return conditions)
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3, 1.965-4(c)(2)

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 202226001                                            Third Party Communication: None
Release Date: 7/1/2022                                       Date of Communication: Not Applicable
Index Number: 9100.31-00
                                                             Person To Contact:
----------------------------                                 -------------------, ID No. -------------------
-----------------------------------                          Telephone Number:
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--------------------------------------                       Refer Reply To:
-------------------------                                    CC:PSI:03
                                                             PLR-118444-21
                                                             Date:
                                                             March 11, 2022




Legend:

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



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

       This letter responds to a letter dated September 2, 2021, submitted on behalf of
Y, requesting that the Service grant Y an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations to elect to classify X as an entity disregarded
from its owner for federal tax purposes.

                                                     FACTS
PLR-118444-21                              2

        The information submitted states that X was formed in Country on Date 1. Y, a
State corporation, is the parent of the consolidated group that owns X. Z, also a State
corporation, was the owner of X on Date 2, and is a member of the same consolidated
group that owns X. For U.S. federal income tax purposes, X is a foreign eligible entity
whose default classification is an association taxable as a corporation. Y represents
that Z intended to file a Form 8832, Entity Classification Election, to elect to classify X
as an entity disregarded from its owner for US federal income tax purposes, effective
Date 2. However, Z failed to file a Form 8832 to classify X as a disregarded entity
effective Date 2. Since Date 2, all of X's tax items have been reported consistent with
its intended classification. Y is therefore requesting an extension of time under
§ 301.9100-3 to make a late entity classification election to treat X as an entity
disregarded from its owner for US federal income tax purposes effective Date 2.

       Y represents that it, X, Z, and all other relevant entities have acted reasonably
and in good faith, that granting relief will not prejudice the interests of the government,
and that it is not using hindsight in making the election.

                                   LAW AND ANALYSIS


        Section 301.7701-3(a) provides 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. Elections are necessary only when an
eligible entity chooses to be classified initially as other than the default classification or
when an eligible entity chooses to change its classification.

       Section 301.7701-3(b)(1) provides that unless the entity elects otherwise, a
domestic eligible entity is: (i) a partnership if it has two or more members; or (ii)
disregarded as an entity separate from its owner if it has a single owner.

        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) by filing Form 8832 with the
appropriate service center. Section 301.7701-3(c)(1)(iii) provides that 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.

       Section 301.9100-1(c) provides that the Commissioner 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.

      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
PLR-118444-21                              3

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 requests for relief subject to § 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 facts submitted and representations made, we conclude that
Y has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result, Y 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 make an election for X to be treated as an entity
disregarded from its owner for federal tax purposes, effective Date 2. A copy of this
letter should be attached to the Form 8832.

         This ruling is contingent on the owners of X, within 120 days from the date of this
letter, filing all required federal income tax returns and information returns (including
amended returns) for all taxable years beginning on or after Date 3, consistent with the
requested relief. These returns must include, but are not limited to, all required Forms
8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, being filed
consistent with the relief granted in this letter. A copy of this letter should be attached to
any such returns.

      The rulings contained in this letter are 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 request for rulings, it is subject to verification on
examination.

        If applicable, this 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 element of any section 965
element of any such United States shareholder. See § 1.965-4(c)(2).

       Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

       This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.
PLR-118444-21                             4

         In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to Y's authorized representatives.


                                                  Sincerely,

                                                  Associate Chief Counsel
                                                  (Passthroughs and Special Industries)




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


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



cc: