Foreign entity receives 120 days for a late disregarded-entity election

Plain-English summary

A foreign entity became wholly owned through an individual who became a U.S. tax resident on a specified date. The entity was eligible and intended to be treated as disregarded from that date but failed to timely file a valid Form 8832. The IRS found that the discretionary-relief requirements were met and granted 120 days to file the election with the ruling attached. The entity and its owner must also file all required tax and information returns for open years consistent with the relief, potentially including Forms 5471, 8865, and 8858.

Ruling snapshot

• Question: May the foreign single-owner entity make a late election to be disregarded for federal tax purposes?
• Outcome: Approved, with 120 days to file Form 8832 and consistent returns for open years.
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-1 through -3

Full text (IRS public release)

 Internal Revenue Service                        Department of the Treasury
                                                 Washington, DC 20224

Number: 201614012                                Third Party Communication: None
Release Date: 4/1/2016                           Date of Communication: Not Applicable
Index Number: 7701.02-00, 9100.00-00,            Person To Contact:
              9100.31-00                         ---------------------, ID No. ------------
                                                 Telephone Number:
 -------------------------------                 --------------------
 ------------------------                        Refer Reply To:
 ----------------                                CC:PSI:B01
 ------------------------------                  PLR-123570-15
                                                 Date:
                                                 January 07, 2016




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

 Y                --------------------

 A            = -------------------
                -----------------------

 Date 1       = -----------------

 Date 2       = ---------------------

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


 Dear -----------------

 This ruling is in response to your request dated June 29, 2015, submitted on behalf of
 X, requesting an extension of time under § 301.9100-3 of the Procedure and
 Administration Regulations to elect to be treated as a disregarded entity for federal
 income tax purposes.

 FACTS

 The information submitted states that X was formed under the laws of Country on Date

    1. On Date 2, Y owned 100% of X. Until Date 2, individual A, the 100% owner of Y, was
 a Country resident and citizen. Effective Date 2, individual A became a U.S. tax
 resident. X represents that, as of Date 2, X was a foreign entity eligible to elect to be
 treated as a disregarded entity. However, X inadvertently failed to timely file a valid
 Form 8832, Entity Classification Election, to elect to be treated as a disregarded entity
 for federal tax purposes effective Date 2.
PLR-123570-15                                  2


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 guidance on the classification of a foreign eligible
entity for federal tax purposes. Generally, a foreign eligible entity is treated as an
association if all members have limited liability, unless the entity makes an election to
be treated otherwise. A foreign eligible entity with a single member having limited
liability may elect to be treated as a disregarded entity pursuant to the rules of
§ 301.7701-3(c). Section 301.7701-3(c) provides that an entity classification election
must be filed on Form 8832 and can be effective up to 75 days prior to the date the form
is filed or up to 12 months after the date the form is filed.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time 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 use
to determine whether to grant an extension of time for regulatory 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 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 § 301.9100-3 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 disregarded entity for federal tax
purposes effective Date 2. A copy of this letter should be attached to the Form 8832.
PLR-123570-15                                 3

This ruling is contingent on X and its owner filing within 120 days of this letter all
required information and tax returns for all open years consistent with the requested
relief. 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 should be attached to any such returns.

Except as specifically set forth above, 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) provides
that it may not be used or cited as precedent.




                                           Sincerely,

                                           Associate Chief Counsel
                                           (Passthroughs & Special Industries)



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



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



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