Foreign company may make a late partnership election

Plain-English summary

A foreign private limited company intended to be classified as a partnership for federal tax purposes but did not timely file Form 8832. The IRS found that the company met the standards for discretionary election relief and granted 120 days to file the form with the intended effective date. The relief is contingent on the company's owner filing all required returns and information returns for open years within the same 120-day period, including Forms 8865 where required. The ruling also states that the election is disregarded for section 965 calculations if it otherwise would change a United States shareholder's section 965 elements.

Ruling snapshot

• Question: May the foreign eligible entity file a late Form 8832 electing partnership classification?
• Outcome: Approved, subject to filing Form 8832 and consistent owner returns within 120 days
• Key authorities: IRC §§ 965, 7701; Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                     Department of the Treasury
                                                              Washington, DC 20224

 Number: 202346003                                            Third Party Communication: None
 Release Date: 11/17/2023                                     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:01
                                                              PLR-103800-23
                                                              Date:
                                                              August 21, 2023




                                                  LEGEND

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

 Country = ---------

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

 Date 2       = -------------------------


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

This responds to a letter dated February 14, 2023, and subsequent correspondence,
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 for X to file
an entity classification election pursuant to § 301.7701-3 of the Procedure and
Administration Regulations to be classified as a partnership for federal tax purposes.

                                                    FACTS

The information submitted states that X is a private limited company formed under the
laws of Country on Date 1. X intended to be classified as a partnership, effective on
Date 2. However, X did not timely file Form 8832, Entity Classification Election, electing
to be treated as a partnership.

                                            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
PLR-103800-23                                    2

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, 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 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 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 301.7701-3(d)(1)(i) provides, in part, that, for purposes of § 301.7701-3, a
foreign eligible entity's classification is relevant when its classification affects the liability
of any person for federal tax or information purposes. The date that the classification of
a foreign eligible entity is relevant is the date an event occurs that creates an obligation
to file a federal tax return, information return, or statement for which the classification of
the entity must be determined. Thus, the classification of a foreign entity is relevant, for
example, on the date that an interest in the entity is acquired which will require a U.S.
person to file an information return on Form 5471.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time 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
PLR-103800-23                                  3

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) granting relief will not prejudice the interests of the Government.

                                       CONCLUSION

Based solely on the facts submitted and the 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 make an election
to be treated as a partnership for federal tax purposes effective Date 2. X must make
the election by filing a properly executed Form 8832 with the appropriate service center.
A copy of this letter should be attached to the Form 8832.

This ruling is contingent on the owner of X filing within 120 days of the date of this letter
all required returns and information returns (including amended returns) for all open
years consistent with the requested relief granted in this letter. These returns include,
but are not limited to, Forms 8865, Return of U.S. Persons with Respect to Certain
Foreign Partnerships, 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 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) of the Income Tax Regulations.

Except for the specific ruling above, we express or imply no opinion concerning the
federal tax consequences of the facts of this case under any other provision of the
Code. In particular, § 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.

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.
PLR-103800-23                                   4

The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and is accompanied by a penalty of perjury statement
executed by the 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.

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,

                                          Associate Chief Counsel
                                          (Passthroughs & Special Industries)




                                    By:
                                          Caroline E. Hay
                                          Senior Technician Reviewer, Branch 1
                                          Office of the Associate Chief Counsel
                                          (Passthroughs & Special Industries)


Enclosure:
      Copy for § 6110 purposes


cc: