Foreign subsidiary gets extra time to file a late "disregarded entity" election

Plain-English summary

Under the "check-the-box" rules, a business entity with a single owner can elect on Form 8832 to be disregarded for federal tax purposes, meaning it is treated as part of its owner rather than as a separate taxpayer. Here a foreign subsidiary was eligible to make that election but missed the filing deadline. It asked the IRS for an extension of time under Treas. Reg. § 301.9100-3, which lets the Commissioner grant relief when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. The IRS found those standards met and granted 120 days to file Form 8832, conditioned on the subsidiary and its parent also filing all required returns (including Form 8858 for foreign disregarded entities) consistent with the relief. The IRS noted that granting more time to elect is not a ruling that the entity actually qualifies. This is a companion ruling to a same-day request and reflects the routine fix for an entity that intended to make a classification election but filed the form late.

Ruling snapshot

• Question: May a foreign eligible entity get an extension of time to file a late Form 8832 electing to be a disregarded entity?
• Outcome: Approved (120-day extension granted, subject to filing consistent returns)
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                   Department of the Treasury
                                                            Washington, DC 20224

 Number: 202238004                                          Third Party Communication: None
 Release Date: 9/23/2022                                    Date of Communication: Not Applicable
 Index Number: 9100.31-00
                                                            Person To Contact:
                                                            -----------------, ID No. -----------------
  ------------------------------                            Telephone Number:
  ---------------------------------------                   --------------------
  ----------------------------------                        Refer Reply To:
  ----------------------------------                        CC:PSI:03
                                                            PLR-100674-22
                                                            Date:
                                                            June 27, 2022




Legend:


 Parent:         =       ------------------------

 Sub:            =       ------------------------------
                         ------------------------

 Country:        =       ----------------

 Date            =       ------- ----------



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

      This letter responds to a letter dated January 7, 2022, and subsequent
correspondence, submitted on behalf of Sub by its authorized representatives,
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 a
disregarded entity for federal tax purposes.

                                                    FACTS

      The information submitted states that Sub was formed under the laws of Country
on Date by Parent. Sub was a foreign entity eligible to elect to be classified as a
PLR-100674-22                                  2

disregarded entity for federal tax purposes. However, Sub failed to timely file Form
8832, Entity Classification Election, to be classified as a disregarded entity effective
Date.

                                   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 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-100674-22                                  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 Sub has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result,
we grant Sub 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 disregarded
as an entity separate from its owner effective Date. A copy of this letter should be
attached to the Form 8832.

        This ruling is contingent on Sub and Parent filing within 120 days from the date of
this letter all required returns for all open years consistent with the requested relief.
These returns must include, but are not limited to, Form 8858, Information Return of
U.S. Persons With Respect to Foreign Disregarded Entities and Foreign Branches, 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 Sub as a disregarded entity is disregarded
for purposes of determining the amounts of all § 965 elements of all United States
shareholders of Sub if the election otherwise would change the amount of any § 965
element of any such United States shareholder. See § 1.965-4(c)(2) of the Income Tax
Regulations.

       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. No opinion was requested and we express or imply no opinion concerning the
application of § 1503(d) or the regulations thereunder to any losses attributable to Sub
with respect to any taxable year that may be affected by this ruling. 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.

       Further, 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
PLR-100674-22                                 4

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.

      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.

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


                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)



                                  By: __________________________________
                                      Mary Beth Carchia
                                      Senior Technician Reviewer, Branch 3
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)



Enclosure:
      Copy of this letter for § 6110 purposes



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