Late foreign disregarded-entity election allowed

Plain-English summary

A foreign eligible entity intended from formation to be treated as disregarded from its single owner for U.S. federal tax purposes. Its owner consistently reported the entity's tax items, but no timely Form 8832 was filed, leaving the entity's default classification as an association taxable as a corporation. The IRS found that the entity met the regulatory relief standards and granted 120 days to file Form 8832 with the intended formation-date effective date. Relief is conditional on the owner filing all required original and amended returns for open years within the same 120-day period, including Forms 8858 that reflect disregarded-entity treatment. The ruling also states that the election is disregarded for section 965 calculations if it otherwise would change a section 965 element.

Ruling snapshot

• Question: Could a foreign eligible entity make a late election to be disregarded from its owner from its formation date?
• Outcome: Approved, with 120-day filing conditions
• 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: 202345004                                            Third Party Communication: None
Release Date: 11/10/2023                                     Date of Communication: Not Applicable
Index Number: 9100.31-00
                                                             Person To Contact:
---------------------------                                  -------------------, ID No.
------------------------------------                         Telephone Number:
----------------------                                       --------------------
------------------------                                     Refer Reply To:
------------------------                                     CC:PSI:03
-------------                                                PLR-102205-23
---------------------------                                  Date:
                                                             July 31, 2023




Legend:

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

Y                 =        -------------

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


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

       This letter responds to a letter dated January 30, 2023, submitted on behalf of X,
requesting that the Service grant X an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations to elect to be classified as an entity
disregarded from its owner for federal tax purposes.

                                                     FACTS

        The information submitted states that X was formed in Country on Date 1. For
U.S. federal income tax purposes, X is a foreign eligible entity whose default
classification is an association taxable as a corporation. X represents that its owner, Y,
intended to elect to classify X as an entity disregarded from its owner for US federal
income tax purposes, effective Date 1. Since Date 1, all of X’s tax items have been
reported on Y’s tax returns. However, due to inadvertence, no timely executed Form

PLR-102205-23                              2

8832, Entity Classification Election, was filed to elect to classify X as an entity
disregarded from its owner. X is therefore requesting an extension of time under
§ 301.9100-3 to make a late entity classification election to be classified as an entity
disregarded from its owner for US federal income tax purposes effective Date 1.

        X represents that it has acted reasonably and in good faith, that granting relief
will not prejudice the interests of the government, and that it is not using hindsight in
making the election.

                                   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. Elections are necessary only when an
eligible entity chooses to be classified initially as other than the default classification or
when an eligible entity chooses to change its classification.

       Section 301.7701-3(b)(1) provides that unless the entity elects otherwise, a
domestic eligible entity is: (i) a partnership if it has two or more members; or (ii)
disregarded as an entity separate from its owner if it has a single owner.

        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) by filing Form 8832 with the
appropriate service center. Section 301.7701-3(c)(1)(iii) provides that 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.

       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 not more than 6 months except in the
case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G,
H, and I. Section 301.9100-1(b) provides that the term “regulatory election” includes 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 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.

        Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3
will be granted when the taxpayer provides the 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.

PLR-102205-23                            3


                                     CONCLUSION

       Based solely on the facts submitted and representations made, we conclude that
X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. 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 an entity disregarded from
its owner for federal tax purposes, effective Date 1. A copy of this letter should be
attached to the Form 8832.

         This ruling is contingent on the owner of X, within 120 days from the date of this
letter, filing all outstanding 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, Forms 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.

      The rulings contained in this letter are 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 request for rulings, it is subject to verification on
examination.

        If applicable, this entity classification election 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 element of any section 965
element of any such United States shareholder. See § 1.965-4(c)(2).

       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.

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

PLR-102205-23                                        4

         In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to X’s authorized representative.


                                                                Sincerely,

                                                                Associate Chief Counsel
                                                                (Passthroughs and Special Industries)



                                                                Richard T. Probst
                                                         By:    ______________________________
                                                                Richard T. Probst
                                                                Senior Technician Reviewer, Branch 3
                                                                Office of Associate Chief Counsel
                                                                (Passthroughs & Special Industries)


Enclosures (2):
      Copy of this letter
      Copy for § 6110 purposes




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