Foreign corporation received more time to file its branch profits tax waiver

Plain-English summary

A foreign corporation sold its only U.S. real property and intended to completely terminate its U.S. trade or business. Its tax preparer initially believed that expected tax refunds remained U.S. assets and therefore did not attach Form 8848 to the corporation's Form 1120-F. After an international tax specialist advised that the business had terminated in the sale year, the corporation sought relief because both the filing deadline and automatic late-election period had passed. The IRS found that the corporation satisfied Treasury Regulation Section 301.9100-3 and gave it 60 days to file a signed Form 8848 with an amended Form 1120-F. The ruling does not address any other tax consequences of the property sale or termination.

Ruling snapshot

• Question: May the foreign corporation file a late Form 8848 waiver for the year it completely terminated its U.S. trade or business?
• Outcome: Approved, with a 60-day deadline
• Key authorities: IRC § 884; Treas. Reg. §§ 1.884-2, 1.884-2T, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 202418011                                              Third Party Communication: None
Release Date: 5/3/2024                                         Date of Communication: Not Applicable
Index Number: 884.00-00, 884.08-00,
              884.08-10, 9100.00-00                            Person To Contact:
                                                               ----------------------, ID No. -----------------
--------------------------------------                         Telephone Number:
------------------------------------------------------------   --------------------
----------                                                     Refer Reply To:
-------------------------------------------------------        CC:INTL:B01
------------------------                                       PLR-119638-23
------------------                                             Date:
                                                               February 2, 2024

         TY: -------

Legend

Taxpayer: -----------------------------------------------------------------------
Country A: ---------------------------
Country B: ----------
Country C: ---------------
Real Property: -------------------------------------------------------
State A: ---------
Date 1: ---------------------
Year 1: --------------------------------------------------------
Date 2: -------------------

Tax Preparer: ----------------------------

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

This is in reply to a letter dated ------------------, requesting an extension of time under
Treas. Reg. § 301.9100-3 for Taxpayer to file a Form 8848, Consent to Extend the Time
to Assess the Branch Profits Tax Under Regulations Sections 1.884-2(a) and (c). The
ruling contained in this letter is based upon facts and representations submitted by
Taxpayer and accompanied by a penalty of perjury statement executed by an
appropriate party. This office has not verified any of the material submitted in support of
the request for a ruling. Verification of the factual information, representations, and other
data may be required as a part of the audit process.

PLR-119638-23                                2

FACTS

Taxpayer is a foreign corporation organized in Country A, and owned by an individual, a
Country B citizen residing in Country C.

Taxpayer acquired ownership of Real Property located in State A on Date 1. The sole
activity of Taxpayer was to hold Real Property located in State A for long-term
investment purposes and not rental income. Other than Real Property and some cash to
pay for property-related expenses, Taxpayer held no other assets. Taxpayer later sold
its interest in Real Property in Year 1 on Date 2 to an unrelated party. The sale was
subject to Federal income tax on a net basis under section 897 of the Code and
withholding under section 1445 as well as State A income tax and withholding. At the
end of Year 1, Taxpayer did not have any assets from which it derived effectively
connected income or with respect to which a disposition would result in gain constituting
income effectively connected with the conduct of a U.S. trade or business.

Taxpayer did not have a filing requirement before Year 1 as it was not conducting a
trade or business within the United States and did not otherwise have U.S. source
income. Taxpayer engaged Tax Preparer to prepare and file Taxpayer’s Form 1120-F,
U.S. Income Tax Return of a Foreign Corporation, for Year 1 to report the gain from the
sale of Real Property and other reportable expenses, and to claim a refund for amounts
withheld in excess of Taxpayer’s liability. Tax Preparer was a Certified Public
Accountant with over twenty years of tax experience. Taxpayer provided Tax Preparer
with all relevant facts.

In the course of preparing the return, Tax Preparer determined that the refunds
receivable with respect to Year 1 would be considered U.S. assets within the meaning
of Treas. Reg. § 1.884-1(d)(2) and that, as a result, Taxpayer would not be considered
to have completely terminated its U.S. trade or business for purposes of Treas. Reg. §
1.884-2T(a) until Taxpayer received the refunded amounts. Accordingly, Form 8848
was not attached to Taxpayer’s Form 1120-F for Year 1. Due to delays in the
processing of Taxpayer’s refund, Tax Preparer consulted with an international tax
specialist who advised that Taxpayer had completely terminated its U.S. trade or
business in Year 1 and that Form 8848 should have been attached to Taxpayer’s Form
1120-F for Year 1.

By the time Tax Preparer consulted with an international tax specialist, the due date to
timely file Form 8848 had passed as had the automatic late election relief available
under Treas. Reg. § 301.9100-2. Therefore, Taxpayer requests an extension of time
under Treas. Reg. § 301.9100-3 to file Form 8848.

PLR-119638-23                                  3

LAW AND ANALYSIS

Treas. Reg. § 1.884-2T(a)(1) provides, in relevant part, that “[a] foreign corporation shall
not be subject to the branch profits tax for the taxable year in which it completely
terminates all of its U.S. trade or business within the meaning of [Treas. Reg. § 1.884-
2T(a)(2)].” Taxpayer represents that the proceeds from the Real Property sale would not
be used to reinvest in a U.S. trade or business and Taxpayer would not engage in a
U.S. trade or business for at least three years from the year of termination, as required
by Treas. Reg. § 1.884-2T(a)(2).

Treas. Reg. § 1.884-2T(a)(2)(i)(D) also requires that the foreign corporation attaches to
its income tax return a waiver of the period of limitations for the branch profits tax in the
year of complete termination. Treas. Reg. § 1.884-2(a)(2)(ii) provides that this waiver
must be executed on Form 8848, or substitute form, on or before the date (including
extensions) prescribed for filing the foreign corporation's income tax return for the year
of complete termination and extend the period of assessment of the branch profits tax
for the year of complete termination to a date not earlier than the close of the sixth
taxable year following that taxable year.

Treas. Reg. § 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in Treas. Reg. § 301.9100-3 to
make a regulatory election under all subtitles of the Internal Revenue Code except
subtitles E, G, H, and I.

Treas. Reg. § 301.9100-1(b) defines a regulatory election as an election whose due
date is prescribed by a regulation, a revenue ruling, revenue procedure, notice, or
announcement.

Treas. Reg. § 301.9100-3 provides rules for extensions of time for making regulatory
elections.

Treas. Reg. § 301.9100-3(a) provides that requests for relief subject to this section will
be granted when the taxpayer provides the evidence (including affidavits described in
Treas. Reg. § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that
the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice
the interests of the Government.

Based on the facts and circumstances of this case, we conclude that Taxpayer satisfies
Treas. Reg. § 301.9100-3(a) and hereby grant Taxpayer an extension of time to file a
signed Form 8848 and attach it to an amended Form 1120-F within 60 days from the
date of this ruling letter.

PLR-119638-23                                            4

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) of the Code
provides that it may not be used or cited as precedent.

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

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

                                               Sincerely,



                                               Richard F. Owens
                                               Branch Chief, Branch 1
                                               (International)

cc: --------------------

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