PLR 9941020: Extra time to elect disregarded status for foreign entity

Plain-English summary

A United States corporation owned a foreign entity and intended to elect to treat it as disregarded for federal tax purposes. A miscommunication with its accountants caused the election to be missed. The IRS found that the requirements for discretionary filing relief were met and gave the owner 60 days from the letter to file Form 8832 with the requested effective date. The ruling did not address whether the owner's consolidated group could deduct a loss from the foreign entity under section 1503(d).

Ruling snapshot

• Question: Can the owner file a late election to disregard its foreign entity?
• Outcome: Approved: Form 8832 may be filed within 60 days of the letter.
• Key authorities: Treas. Reg. §§ 301.9100-1, 301.9100-3, 301.7701-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 9100.00-00 Washington, DC 20224

Number: 199941020
Person to Contact:
Release Date: 10/15/1999
Telephone Number:

Refer Reply To:
CC:DOM:P&SI:1-PLR-103507-99
Date:
July 13, 1999

Legend:

A
=

B
=

C
=

D1
=

State =

Country =

This responds to a letter dated June 4, 1999, and prior correspondence 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 for C to be disregarded as an entity separate from its owner for Federal tax purposes under § 301.7701-3(c).

FACTS

A is a U.S. corporation which owns all of the stock of B, a U.S. corporation formed under the laws of State. B owns all of the stock of C, a Public Company formed under the laws of Country on D1. B is not liable for any of the debts or liabilities of C.

C represents that it intended to make an election to be disregarded as an entity separate from its owner, but that it did not make the election due to a miscommunication 2 CC:DOM:P&SI:1-PLR-103507-99

with its accountants.

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.

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 3 CC:DOM:P&SI:1-PLR-103507-99

granted an extension of time to make the election to have C 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. Specifically, no opinion is expressed regarding the limitations set forth in § 1503(d), and the regulations thereunder, on X’s consolidated group’s ability to deduct the loss from C.

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