PLR 9939023: Foreign entity gets more time to elect disregarded tax status

Plain-English summary

A foreign entity with one owner intended to elect treatment as disregarded for U.S. federal tax purposes. A miscommunication between its attorneys and accountants left the Form 8832 election unfiled. The IRS found that the requirements for discretionary election relief under the § 301.9100 regulations were met. It granted the entity 60 days from the letter date to file the election effective from the stated formation date and directed it to attach a copy of the letter. The IRS expressed no opinion on other tax consequences of the arrangement.

Ruling snapshot

• Question: May the foreign entity file a late election to be disregarded from its formation date?
• Outcome: Approved: a 60-day extension to file Form 8832 with the ruling attached.
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 9100.00-00 Washington, DC 20224

Number: 199939023
Person to Contact:
Release Date: 10/1/1999
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:1-PLR-104949-99
Date:
July 01, 1999

Legend:

A
=

B
=

State =

D1
=

Country =

$
=

This responds to a letter dated February 18, 1999, submitted on behalf of B requesting an extension of time pursuant to §301.9100-3(a) of the Procedure and Administration Regulations to file an election to be disregarded as an entity separate from its owner for federal tax purposes under § 301.7701-3(c).

FACTS

A is a limited liability company formed under the laws of State and is the sole owner of B, an entity formed under the laws of Country on D1. A is not liable for any of the debts or liabilities of B and taxpayer represents that B was expected to incur a loss for the short taxable year commencing on D1. B actually incurred a loss of approximately $ for the short-taxable year commencing D1.

A has two owners, both U.S. individuals, who also own a corporation which has a 2
CC:DOM:P&SI:1-PLR-104949-99

Subchapter S election in effect, as well as several other U.S. entities. The S corporation engages in transactions with B. B engages in a business in which it purchases raw materials from the S corporation and reshapes the material into a finished product for its various customers. Taxpayer represents that the two U.S. individuals who own A, hold ownership interests in the S corporation and the other U.S. entities in the same proportion in which they hold A.

Both A and B intended for B to elect to be disregarded as an entity separate from its owner. However, due to a miscommunication between B’s attorneys and accountants, the election was not made.

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. 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) provides that, unless the entity elects otherwise, a foreign eligible entity is an association if all its members have limited liability.

Under § 301.7701-3(c)(1)(i), a foreign eligible entity with a single owner who has limited liability can elect to be classified as a disregarded entity by filing a Form 8832. To be valid, an election must generally be signed by each member of the electing entity, or any officer, manager, or member of the electing entity who is authorized (under local law or the entity’s organizational documents) to make the election and who represents to having such authorization under penalties of perjury. See § 301.7701-3(c)(2)(i). The effective date specified on Form 8832 can not be more than 75 days prior nor more than 12 months after the date on which the election is filed. § 301.7701-3(c)(1)(iii).

Section 301.9100-1(c) of the Procedure and Administration Regulations provides that the Commissioner has discretion to grant a reasonable extension of time, under the rules set forth in §§ 301.9100-2 and 301.9100-3, to make a regulatory election. Section 301.9100-1(b) defines a 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 Service Bulletin.

Sections 301.9100-1 through 301.9100-3 provide standards the Commissioner will use to determine whether to grant an extension of time to make an election. § 301.9100- 1(a).

Section 301.9100-2 provides automatic extensions of time for making certain elections. § 301.9100-3 provides extensions of time for making elections that do not meet the requirements of § 301.9100-2. 3 CC:DOM:P&SI:1-PLR-104949-99

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. § 301.9100-3(a).

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a result, B is granted an extension of time to make the election to be treated as disregarded as an entity separate from its owner for federal tax purposes, effective D1, until 60 days following the date of this letter. The election should be made by following the procedure set forth in Form 8832 and a copy of this letter should be attached to the election.

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.

Sincerely,

Signed/Paul F. Kugler

Paul F. Kugler
Assistant Chief Counsel
(Passthroughs and Special Industries)

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