Foreign entity gets more time to elect disregarded-entity status

Plain-English summary

A foreign business entity that is eligible to choose how it is classified for U.S. federal tax purposes wanted to be treated as a "disregarded entity" (that is, ignored as separate from its single owner, so the owner is taxed directly) effective a specific date. To make that choice, it had to file Form 8832, the entity classification election, by a deadline, but it inadvertently missed the deadline. It asked the IRS for relief under the Section 301.9100-3 regulations, which let the IRS grant more time to make a missed regulatory election when the taxpayer acted reasonably and in good faith and giving relief would not prejudice the government. Based solely on the taxpayer's representations, the IRS granted a 120-day extension to file Form 8832 for the requested effective date. The relief is contingent on the entity and its U.S. owners filing all consistent federal returns and information returns for open years (for example, Forms 5471, 8858, and 8865). The IRS expressed no opinion on whether the entity is otherwise eligible to make the election or on any penalties for late filing.

Ruling snapshot

• Question: May a foreign eligible entity that missed the deadline get extra time to file Form 8832 electing to be a disregarded entity?
• Outcome: Approved, 120-day extension granted (contingent on consistent return filing).
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3; § 1.965-4(c)(2); IRC § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202418005 Third Party Communication: None
Release Date: 5/3/2024 Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00
Person To Contact:
---------------------------------------------------------- -----------------------------, ID No. -------------
----------------------------------------- -----------------
------------------------- Telephone Number:
------------------------- --------------------
--------------------------------------------------------- Refer Reply To:
CC:PSI:01
PLR-115771-23
Date:
February 7, 2024

                                                LEGEND

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

Year = -------

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

Date = ----------------------

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

This letter responds to a letter dated August 8, 2023, 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 election under § 301.7701-3
to be classified as a disregarded entity for federal tax purposes.

                                                 FACTS

According to the information submitted, X was formed in Year under the laws of
Country. X represents that it is a foreign entity eligible to elect to be classified as a
disregarded entity for federal tax purposes. However, X inadvertently failed to timely file
Form 8832, Entity Classification Election, to be classified as a disregarded entity for
federal tax purposes effective Date.

X represents that it acted reasonably and in good faith. X also represents that granting
the requested relief 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, 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, 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 IRS Service Center designated on the form.

Section 301.7701-3(c)(1)(iii) provides, in part, that an election made under § 301.7701-
3(c)(1)(i) will be effective on the date specified by the entity on Form 8832 or on the
date filed if no such date is specified on the election form. The effective date specified
on Form 8832 can not be more than 75 days prior to the date on which the election is
filed and can not be more than 12 months after the date on which the election is filed. If
an election specifies an effective date more than 75 days prior to the date it was filed, it
will be effective 75 days prior to the date it was filed.

Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of time
under the rules set forth in §§ 301.9100-2 and 301.9110-3 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 except
subtitles E, G, H, and I. Section 301.9100-1(b) defines a "regulatory lection" 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 an election. Section
301.9100-2 provides automatic extensions of time for making certain elections. Section
301.9100-3 provides extensions 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 under § 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 (i) the
taxpayer acted reasonably and in good faith, and (ii) the grant of relief will not prejudice
the interests of the Government.

                                  CONCLUSION

Based solely on the facts 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 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. A copy of this letter should be attached
to the Form 8832 filed for X.

This ruling is contingent on X and any of its U.S. owners filing, within 120 days from the
date of this letter, all required federal income tax 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, (i) Forms 5471, Information Returns
of U.S. Persons with Respect to Certain Foreign Corporations, (ii) Forms 8858,
Information Return of U.S. Persons with Respect to Foreign Disregarded Entities
(FDEs) and Foreign Branches (FBs), and (iii) 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, this 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 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
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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent
to your authorized representatives.

                                       Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)

                                  By: ____________________________
                                      Joy Spies
                                      Senior Technician Reviewer, Branch 1
                                      Office of Associate Chief Counsel
                                      (Passthroughs & Special Industries)

Enclosure:
Copy for § 6110 purposes

cc: