Foreign corporation received 30 days to file a late branch-tax election statement

Plain-English summary

A foreign corporation owned a disregarded U.S. limited liability company that conducted a U.S. trade or business. When the LLC elected corporate status, its assets were treated as contributed to a new corporation in a section 351 transaction. The parties intended to make an election under the temporary branch profits tax regulations, and the LLC timely included the transferee statement with its return. Their accounting firm, however, omitted the corresponding transferor statement from the foreign corporation's Form 1120-F. The IRS found that the taxpayer acted reasonably and in good faith and that relief would not prejudice the government. It granted 30 days to file the missing statement, without deciding whether the parties otherwise qualified for the election or whether the foreign corporation's return was timely.

Ruling snapshot

• Question: Could the foreign corporation file late the transferor statement required for a branch profits tax election after a section 351 incorporation?
• Outcome: approved, 30 days to file the statement
• Key authorities: IRC §§ 351 and 884; Treas. Reg. §§ 1.884-2T(d), 301.9100-1, and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202249013                                              Third Party Communication: None
 Release Date: 12/9/2022                                        Date of Communication: Not Applicable
 Index Number: 884.00-00, 884.08-00,
               884.08-40, 9100.00-00                            Person To Contact:
                                                                -----------------------, ID No. -------------------
 ------------------------                                       ---------------------------------------------------
 -------------------------------------------------------        Telephone Number:
 -------------------------------                                --------------------
 -------------                                                  Refer Reply To:
 -------------------------------                                CC:INTL:B01
                                                                PLR-109861-22
                                                                Date:
                                                                September 15, 2022




Legend

 Taxpayer       = ----------------------------------------------------------------------------------------------
                  -----------------------
 LLC            = ----------------------------------------------------------------------------------------------
                  ------------------------
 Country        = --------------
 X
 State A        =    -------------
 Year 1         =    -------
 Year 2         =    -------
 Year 3         =    -------
 Date 1         =    ----------------
 Date 2         =    -------------
 Date 3         =    ------------------
 CPA Firm       =    ----------------------------------------



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

This replies to a letter dated May 15, 2022, from your authorized representative, in
which you request an extension of time pursuant to Treas. Reg. § 301.9100-1(c) and
Treas. Reg. § 301.9100-3 to permit Taxpayer to file the appropriate statement under
Treas. Reg. § 1.884-2T(d)(5) with respect to its Year 1 tax year in connection with an
election under Treas. Reg. § 1.884-2T(d)(4)(i) by LLC to increase its earnings and
profits by the amount determined under Treas. Reg. § 1.884-2T(d)(4)(ii).

PLR-109861-22                                 2

The rulings contained in this letter are based upon facts and representations submitted
by Taxpayer and accompanied by a penalty of perjury statement executed by an
appropriate party. This office has not verified any of the material submitted in support of
the request for a ruling. Verification of the factual information, representations, and other
data may be required as a part of the audit process.

Taxpayer, a Country X Entity, is classified as a corporation for federal income tax
purposes and is a calendar-year taxpayer. As of the beginning of its Year 1 tax year,
Taxpayer wholly owned LLC, a State A limited liability company that was treated as a
disregarded entity for federal tax purposes pursuant to Treas. Reg. § 301.7701-
3(b)(1)(ii) and that was engaged in a U.S. trade or business.

Taxpayer engaged CPA Firm for tax consulting and compliance matters, including the
preparation and filing of the appropriate U.S. federal income tax returns for Year 1 and
Year 2. Taxpayer reported and paid branch profits tax on the after-tax earnings of LLC,
when applicable.

On Date 1, Year 2, LLC filed a Form 8832 (Entity Classification Election) to elect to be
treated as a corporation for federal income tax purposes with retroactive effect to Date
2, Year 2. CPA Firm was engaged to assist with advice on a transaction involving this
election. As a consequence of the election, LLC’s assets were treated as contributed to
a newly formed association in a transaction that was described in section 351
immediately before the close of the day before the entity classification effective date
(i.e., Date 3, Year 1). CPA Firm discussed with Taxpayer the possibility of LLC making
an election under Treas. Reg. § 1.884-2T(d)(4)(i). Taxpayer intended, with the
assistance of CPA Firm, for LLC to make the election and for CPA Firm to include the
required statements with the appropriate tax returns.

Under Treas. Reg. § 1.884-2T(d)(3), if a foreign corporation (transferor) engaged in the
conduct of a U.S. trade or business makes a transfer under section 351(a) of the Code
of all or part of its U.S. assets to a U.S. corporation (transferee) in exchange for stock or
securities in the transferee, the transferor's dividend equivalent amount will be
determined without regard to the section 351 transfer, provided the transferee makes an
election under Treas. Reg. § 1.884-2T(d)(4)(i) to increase its earnings and profits by an
allocable portion of the transferor's effectively connected earnings and profits and non-
previously taxed accumulated earnings. The election is generally only effective if the
transferee attaches the requisite statement described in Treas. Reg. § 1.884-2T(d)(4)(i)
(transferee election statement) to its timely filed (including extensions) income tax return
for the taxable year in which the transaction occurs. The transferor must also file a
statement agreeing that, upon disposition of part or all of the stock or securities it owns
in the transferee, it will treat as a dividend equivalent amount for the taxable year in
which the disposition occurs an amount equal to the lesser of (A) the amount realized
upon such disposition or (B) the total amount of the effectively connected earnings and
profits and non-previously taxed accumulated earnings and profits that was allocated
from the transferor corporation to the transferee corporation pursuant to the election

PLR-109861-22                                 3

under Treas. Reg. § 1.884-2T(d)(4)(i) (transferor election statement). Treas. Reg. §
1.884-2T(d)(5)(i). This statement must be attached to a timely filed (including
extensions) return of the transferor for the taxable year in which the section 351
transaction occurs. Treas. Reg. § 1.884-2T(d)(5)(iv).

CPA Firm prepared and filed Taxpayer’s Year 1 Form 1120-F consistent with the intent
to make the election but inadvertently failed to prepare and attach the transferor election
statement as required by Treas. Reg. § 1.884-2T(d)(5)(iv). In reviewing the tax return
CPA Firm prepared, Taxpayer did not identify that the statement was missing.

CPA Firm also prepared and filed LLC’s Year 2 Form 1120 and included a transferee
election statement pursuant to Treas. Reg. § 1.884-2T(d)(4)(i). In the course of
preparing the return, CPA Firm discovered that Taxpayer inadvertently failed to file the
transferor election statement. After learning this information, Taxpayer directed CPA
Firm to begin the process to request relief. The IRS did not discover Taxpayer’s failure
to timely file the required statement before this request for relief was filed.

Treas. Reg. § 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the standards set forth in Treas. Reg. § 301.9100-3
to make a regulatory election under all subtitles of the Internal Revenue Code except
subtitles E, G, H, and I.

Treas. Reg. § 301.9100-1(b) defines a regulatory election as an election whose due
date is prescribed by a regulation, a revenue ruling, revenue procedure, notice, or
announcement.

Treas. Reg. § 301.9100-3 provides standards for extensions of time for making
regulatory elections when the deadline for making the election is other than a due date
prescribed by statute.

Treas. Reg. § 301.9100-3(a) provides that requests for relief subject to this section will
be granted when the taxpayer provides the evidence (including affidavits described in
Treas. Reg. § 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. Except as otherwise provided in Treas. Reg.
§ 301.9100-3(b)(3)(i) through (iii), a taxpayer is deemed to have acted reasonably
and in good faith if the taxpayer requests relief before the failure to make the regulatory
election is discovered by the IRS. Treas. Reg. § 301.9100-3(b)(1)(i).

In the present situation, Treas. Reg. § 1.884-2T(d)(5)(iv) fixes the time for Taxpayer to
file the statement. Therefore, the Commissioner has discretionary authority under
Treas. Reg. § 301.9100-1(c) to grant Taxpayer an extension of time, provided that it
satisfies the standards set forth in Treas. Reg. § 301.9100-3(a).

PLR-109861-22                                  4

Based on the facts and circumstances of this case, we conclude that Taxpayer acted
reasonably and in good faith, and the grant of relief will not prejudice the interests of the
Government. Accordingly, under Treas. Reg. § 301.9100-3, Taxpayer is granted an
extension of time until 30 days from the date of this ruling letter to file the appropriate
statement under Treas. Reg. § 1.884-2T(d)(5) with respect to its Year 1 tax year. The
granting of an extension of time is not a determination that LLC and Taxpayer are
otherwise eligible to make the election. Treas. Reg. § 301.9100-1(a).

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 under other provisions of the Code and regulations, or about the tax treatment
of any conditions existing at the time of, or effects resulting from the transactions not
specifically covered by the above rulings. In particular, no opinion is expressed with
respect to (i) the application of section 351 and related provisions to the transactions
discussed, and (ii) whether the federal income tax return of Taxpayer was timely filed
(including extensions).

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any income tax return to which it is relevant.

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




                                               Sincerely,


                                               _____________________________
                                               Richard F. Owens
                                               Senior Technical Reviewer, Branch 1
                                               Associate Chief Counsel (International)



 Enclosure:
 Copy for 6110 Purposes


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