Foreign entity receives late disregarded-entity election relief

Plain-English summary

A foreign eligible entity intended to be treated as a disregarded entity from its formation date but failed to file Form 8832 on time. The IRS concluded that the entity met the standards for discretionary election relief and granted 120 days to submit the late election. The relief is conditioned on the entity and its owners filing all required original or amended returns consistently within the same period, including any applicable Forms 5471, 8865, and 8858. The ruling does not determine whether the entity otherwise qualifies for the classification election or excuse penalties for late returns. It also disregards the election for section 965 computations if recognizing it would change a United States shareholder's section 965 elements.

Ruling snapshot

• Question: May the foreign entity make a late Form 8832 election for disregarded-entity status from its formation date?
• Outcome: Approved, with a 120-day election and consistent-return period
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-2, 301.9100-3, and 1.965-4(c)(2)

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202314011                                              [Third Party Communication:
 Release Date: 4/7/2023                                         Date of Communication: Month DD, YYYY]
 Index Number: 7701.00-00, 9100.31-00
                                                                Person To Contact:
 ------------------------------------------                     ------------------------, ID No. -----------------
 -------------------------------                                Telephone Number:
 -------------------------                                      --------------------
 ---------------------------------                              Refer Reply To:
 ------------                                                   CC:PSI:B01
 ------------------------------------------------------------   PLR-113734-22
                                                                Date:
                                                                January 09, 2023




                                                    LEGEND

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


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

Date 1            =        -----------------


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


This responds to a letter dated July 14, 2022, submitted on behalf of X by X’s
authorized representatives, requesting an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations to elect to be treated as a disregarded entity
for federal tax purposes.

                                                     FACTS

The information submitted states that X was formed on Date 1 as an entity under the
laws of Country. X intended to be treated as a disregarded entity for federal tax
purposes effective Date 1. However, X inadvertently failed to timely file Form 8832,
Entity Classification Election, to be treated as a disregarded entity for federal tax
purposes.
PLR-113734-22                                  2

                                   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 may elect to be classified as either an association (and
thus a corporation under § 301.7701-2(b)(2)) or as 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 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 appropriate service center. 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 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.

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 regulator elections that do not
meet the requirements of § 301.9100-2.
PLR-113734-22                                 3

Under § 301.9100-3, a request for relief 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 (1) the taxpayer acted reasonably and in good
faith, and (2) granting 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 and elect to be treated as a disregarded entity
for federal tax purposes effective Date 1. A copy of this letter should be attached to the
Form 8832.

This ruling is contingent on X and its owner(s) filing, within 120 days of this letter, all
required federal income tax returns and information returns (including amended returns)
consistent with the requested relief granted in this letter. These returns may include, but
are not limited to, the following forms: (i) Forms 5471, Information Return of U.S.
Persons With Respect to Certain Foreign Corporations, (ii) Forms 8865, Return of U.S.
Persons With Respect to Certain Foreign Partnerships, and (iii) Forms 8858,
Information Return of U.S. Persons With Respect to Disregarded Entities, such that
these forms reflect the consequences of the relief granted in this letter. A copy of this
letter ruling should be attached to any such returns.

If applicable, the election described above is disregarded for purposes of determining
the amounts of all § 965 elements of all United States shareholders of X if the election
otherwise would change the amount of any § 965 element of any such United States
shareholder. See § 1.965-4(c)(2).

Except as specifically set forth above, we express or imply no opinion concerning the
federal tax consequences of the facts described above under any other provision of the
Code and the regulations thereunder. 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
PLR-113734-22                                  4

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 representatives.



                                           Sincerely,


                                           Holly Porter
                                           Associate Chief Counsel
                                           (Passthroughs & Special Industries)



                                    By: __/s/_______________________________




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