IRS grants late relief for a foreign entity's disregarded-entity election

Plain-English summary

A single-owner business entity formed abroad wanted to be treated as a "disregarded entity" for U.S. tax, meaning its owner reports the entity's income directly as if the entity did not exist separately. The owner, a foreign citizen, became a U.S. resident alien, and the entity was eligible to make that election by filing Form 8832, but it missed the filing deadline. Under the Section 301.9100 regulations, the IRS can grant more time for a missed election if the taxpayer acted reasonably and in good faith and relief will not harm the government's interests. The IRS granted a 120-day extension to file Form 8832 electing disregarded-entity status as of the requested date. The relief is conditioned on the entity and its owner filing all consistent returns for open years (which may include Forms 5471, 8865, and 8858) within 120 days. Standard caveats apply, including that the election is disregarded for figuring Section 965 amounts and that the ruling does not decide whether the entity is actually eligible to make the election. The ruling was signed by the Office of Associate Chief Counsel (Passthroughs & Special Industries).

Ruling snapshot

• Question: Will the IRS grant more time to a foreign eligible entity to elect disregarded-entity status on a late Form 8832?
• Outcome: Approved (120-day extension under Treas. Reg. § 301.9100-3).
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 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: 202304002
Third Party Communication: None
Release Date: 1/27/2023
Date of Communication: Not Applicable
Index Number: 9100.31-00, 7701.00-00
Person To Contact:
-----------------------------
----------------------, ID No. -----------------
----------------------------------------- Telephone Number:
----------------------------------
--------------------
--------------------------------
Refer Reply To:
------------------------------------------------------ CC:PSI:B01 PLR-108832-22
Date:
October 25, 2022

LEGEND

X = -----------------------------
-----------------------

A = ------------------------
------------------------

Country = ------------

Date1 = ----------------------

Year1 = -------

Year2 = -------

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

This letter responds to a letter dated April 21, 2022, submitted on behalf of X by its authorized representative, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X 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 X was formed under the laws of Country in Year1. A, a citizen of Country, is the sole owner of X. In Year2, A became a resident alien subject to US federal tax. X represents that it is a foreign entity eligible to elect to be disregarded as an entity separate from its owner. However, X failed to timely file Form

8832, Entity Classification Election, electing to classify X as a disregarded entity effective Date1.

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 as provided in § 301.7701-3. 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, 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 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. 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 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 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 no more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as an election whose due date is prescribed by a regulation published in the Federal Register or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

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 the election. 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 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 a taxpayer provides 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 information submitted and the representations made, we conclude that the requirements of § 301.9100-1 and 301.9100-3 have been satisfied. 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 treated as a disregarded entity effective Date1. A copy of this letter should be attached to the Form 8832.

This ruling is contingent on X and the owners of X filing within 120 days from the date of this letter all required returns for all open years consistent with the requested relief. These returns may include, but are not limited to, the following forms: (i) Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, (ii) Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships, and (iii) 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 X as a disregarded entity 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).

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code. 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.

We express no opinion concerning the assessment of any interest, additions to tax, additional amounts, or penalties for failure to file a timely tax or 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.

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 to the taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely,

Holly Porter
Associate Chief Counsel
(Passthroughs & Special Industries)

By: ________
Laura C. Fields
Chief, Branch 1
Office of the Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes

cc: