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: