Foreign entity allowed late partnership election

Plain-English summary

A foreign limited liability partnership defaulted to corporate classification because all its members had limited liability. When a U.S. citizen became a partner, the entity and its owners intended partnership treatment but did not know they needed to file Form 8832. They consistently reported the entity as a partnership and represented that the omission was inadvertent, involved no hindsight, and would not prejudice the government. The IRS granted 120 days to file the late partnership election. Relief is contingent on the entity and its owners filing all required returns for open years consistently with partnership treatment, and the election is disregarded for section 965 calculations if it would change a United States shareholder's section 965 elements.

Ruling snapshot

• Question: May the foreign entity file a late Form 8832 electing partnership status when it consistently reported that status?
• Outcome: Approved, with 120 days to file the election and consistent returns
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3; IRC § 965

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202432018 Third Party Communication: None
Release Date: 8/9/2024 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-123974-23
----------------------------- Date:
May 10, 2024

                                                   LEGEND

X = -------------------------------
A = -------------------------------
Country = --------------------------
Date 1 = ------------------------
Date 2 = ---------------------

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

This responds to a letter dated November 1, 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 to file an election under § 301.7701-3(c) to
be classified as a partnership for federal tax purposes, effective Date 2.

                                                   FACTS

According to the information submitted, X was formed on Date 1 as a limited liability
partnership under the laws of Country. As an entity whose members all had limited liability,
X’s default classification under § 301.7701-3(b)(2)(B) was as an association taxable as a
corporation for federal tax purposes. X has never engaged in a U.S. trade or business. On
Date 2, A, a U.S. citizen, became a partner of X. Due to inadvertence, X and A were
unaware of the need to timely file Form 8832, Entity Classification Election, for X to be
treated as a partnership for federal tax purposes, effective Date 2. At all times since Date 2,
X and A have consistently reported as if X was a partnership.
PLR-123974-23 2

X represents that it has acted reasonably and in good faith, and that the interests of the
government will not be prejudiced by granting relief. X further represents that no
hindsight is involved in seeking the relief requested.

                                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 may elect to be classified as either an association (and
thus a corporation under § 301.7701-2(b)(2)) or as 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 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 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 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 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-123974-23 3

use to determine whether to grant an extension of time for regulator 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 information 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 a Form
8832 with the appropriate service center to elect to be treated as a partnership for
federal tax purposes, effective Date 2. A copy of this letter should be attached to the
Form 8832 filed for X.

This ruling is contingent on X and its owner(s), filing, within 120 days of this letter, all
required federal income tax returns and information returns (including amended returns)
consistent with the requested relief granted in this letter. These returns may include,
but are not limited to, the following forms: (i) Forms 5471, Information Return of U.S.
Persons With Respect to Certain Foreign Corporations, (ii) Forms 8865, Return of U.S.
Persons With Respect to Certain Foreign Partnerships, and (iii) Forms 8858,
Information Return of U.S. Persons With Respect to Disregarded Entities, such that
these forms reflect the consequences of the relief granted in this letter. A copy of this
letter ruling should be attached to any such returns.

If applicable, the election described above is disregarded for purposes of determining
the amounts of all § 965 elements of all United States shareholders of X if the election
otherwise would change the amount of any § 965 element of any such United States
shareholder. See § 1.965-4(c)(2).

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.
PLR-123974-23 4

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

Pursuant to a power of attorney on file with this office, copies of this letter are being sent
to X’s authorized representatives.

                                       Sincerely,

                                       Holly Porter
                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)



                                 By:
                                       Christiaan T. Cleary
                                       Assistant to the Branch Chief, Branch 1
                                       Office of the Associate Chief Counsel
                                       (Passthroughs & Special Industries)

Enclosure
Copy of Letter for § 6110 purposes

cc: