IRS grants a foreign entity 120 days to make a late "check-the-box" election to be disregarded

Plain-English summary

Under the "check-the-box" rules, an eligible business entity can choose how it is taxed by filing Form 8832. A single-owner entity can elect to be "disregarded," meaning it is ignored for federal tax purposes and its activities are treated as the owner's. This taxpayer is a foreign entity whose default classification was a corporation, but it intended to elect to be disregarded as of a specific date. It simply failed to file the Form 8832 election on time. The entity asked the IRS for an extension under the "9100 relief" regulation (Treas. Reg. § 301.9100-3), representing that it acted reasonably and in good faith and that granting relief would not harm the government. The IRS agreed and granted 120 days from the date of the letter to file the Form 8832 with the requested effective date. The relief is conditioned on the entity and its owner filing, within the same 120 days, all required returns and information returns for open years (including Form 8858 for foreign disregarded entities) consistent with the election. The IRS stressed it was not deciding whether the entity is actually eligible to make the election, only excusing the late filing. It matters to foreign entities and their U.S. owners who missed the deadline to set their federal tax classification.

Ruling snapshot

• Question: Should the IRS grant an extension under § 301.9100-3 to make a late § 301.7701-3 election to be a disregarded entity?
• Outcome: approved (120 days to file Form 8832; conditioned on filing consistent returns)
• Key authorities: Treas. Reg. § 301.7701-3(a), (b)(2), (c)(1); Treas. Reg. §§ 301.9100-1, 301.9100-2, 301.9100-3; IRC § 7701

Full text (IRS public release)

Internal Revenue Service                                  Department of the Treasury
                                                           Washington, DC 20224

Number: 202336014                                         Third Party Communication: None
Release Date: 9/8/2023                                    Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
              9100.31-00                                  Person To Contact:
                                                           --------, ID No. ------
                                                           Telephone Number:
                                                           ------
                                                           Refer Reply To:
                                                           CC:PSI:B03
                                                           PLR-124101-22
                                                           Date:
                                                           June 12, 2023

LEGEND

 Company = ------
 X              = ------
 Country        = ------
 Date 1         = ------
 Date 2         = ------

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

        This letter responds to a letter dated December 12, 2022, and subsequent
correspondence submitted on behalf of Company by its authorized representatives,
requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations for Company 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 Company was formed under the laws of
Country on Date 1. As of Date 1, Company's default classification was an association
taxable as a corporation. Company represents that Company is a foreign entity eligible
to elect to be disregarded as an entity separate from its owner effective Date 2.
Company further represents that Company intended to elect to be disregarded as an
entity separate from its owner effective Date 2. However, Company failed to timely file
a Form 8832, Entity Classification Election, electing to be disregarded entity for federal
tax purposes effective Date 2.

      Company represents that it acted reasonably and in good faith. Company also
represents that granting of relief requested will not prejudice the interests of the
government.

                                   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 relevant 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 the Form 8832 or on the
date filed if no 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.

       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 six 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) defines a regulatory
election to include an election whose due date is prescribed by a regulation published in
the Federal Register.

      Section 301.9100-2 provides the rules governing automatic extensions of time for
making certain elections.

       Section 301.9100-3 sets forth 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 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) 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 Company has satisfied the requirements of §§ 301.9100-1 and 301.9100-

3. As a result, Company is granted an extension of time of 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 for federal tax purposes effective Date 2. A copy of
this letter should be attached to Company's Form 8832.

        This ruling is contingent on Company and its owner, X, filing, within 120 days
from the date of this letter, all required federal income tax returns and information
returns (including amended 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.

        Except as expressly provided herein, we express or imply no opinion concerning
the federal tax consequences of any transaction or item discussed or referenced in this
letter. 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.

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

      In accordance with a power of attorney on file with this office, we are sending a
copy of this letter to Company's authorized representatives.

                                     Sincerely,

                                     Associate Chief Counsel
                                     (Passthroughs & Special Industries)

                                       /S/
                                  By:_____________________________
                                     Robert D. Alinsky
                                     Branch Chief, Branch 3
                                     Office of Associate Chief Counsel
                                     (Passthroughs & Special Industries)

Enclosure:
      Copy of this letter for § 6110 purposes


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