Foreign entity receives 120 days for a late change to corporate status

Plain-English summary

A foreign eligible entity had previously made an entity-classification election and later intended to change its classification to an association taxable as a corporation from a specified date. It did not timely file the new Form 8832. The IRS found that the requirements for discretionary election relief were satisfied and granted 120 days to file the form with the requested effective date. The entity and the consolidated-group parent must also file any required original, amended, or information returns consistent with the relief within the same period. The ruling did not decide whether the entity was otherwise eligible to make the election.

Ruling snapshot

• Question: May the foreign eligible entity make a late election changing its classification to a corporation?
• Outcome: Approved, with 120 days to file Form 8832 and any consistent returns.
• 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: 201614014                                               Third Party Communication: None
Release Date: 4/1/2016                                          Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,                           Person To Contact:
              9100.31-00                                        -----------------------, ID No. ----------------
                                                                Telephone Number:
 ------------------------------------------                     --------------------
 -----------------------                                        Refer Reply To:
 ------------------------                                       CC:PSI:B03
 ---------------------------                                    PLR-124097-15
                                                                Date:
                                                                December 30, 2015



 Legend

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

 Y                 = -----------------------------

 Z                 = ----------------------------------------

 Country           = -------

 Date1             = ------------------------

 Date2             = ---------------------


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

       This letter responds to a letter dated July 15, 2015, submitted on behalf of X,
 requesting an extension of time under § 301.9100-3 of the Procedure and
 Administration Regulations for X to file an entity classification election.

         The information submitted states that X was formed under the laws of Country on
 Date1 and is indirectly owned by Y. Y is a member of a consolidated group for which Z
 is the parent corporation. X represents that it is a foreign entity eligible to make an
 entity classification election for federal tax purposes. An entity classification election
 was previously made on behalf of X effective on Date1. X now seeks relief to make a
 late entity classification election to be classified as an association taxable as a
 corporation for federal tax purposes effective on Date2.

         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. Elections are necessary only when an
PLR-124097-15                                  2



eligible entity does not want to be classified under the default classification or when an
eligible entity chooses to change its classification.

       Section 301.7701-3(b) provides default classification for an eligible entity that
does not make an election. Section 301.7701-3(b)(2)(i) provides that, unless the entity
elects otherwise, a foreign eligible entity is (A) a partnership if it has two 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(c)(1)(i) provides 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 no more than 12 months
after the date the election is filed.

        Section 301.7701-3(c)(1)(iv) provides that if an eligible entity makes an election
under § 301.7701-3(c)(1)(i) to change its classification (other than an election made by
an existing entity to change its classification as of the effective date of this section), the
entity cannot change its classification by election again during the sixty months
succeeding the effective date of the election. However, the Commissioner may permit
the entity to change its classification by election within the sixty months if more than fifty
percent of the ownership interests in the entity as of the effective date of the subsequent
election are owned by persons that did not own any interests in the entity on the filing
date or on the effective date of the entity’s prior election.

       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) provides
that the term “regulatory election” includes an election whose due date is prescribed by
a regulation published in the Federal Register.

       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 extension 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 a taxpayer provides evidence to establish to the
PLR-124097-15                                 3



satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good
faith, and (2) the granting of relief will not prejudice the interests of the government.

        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 classified as an
association taxable as a corporation, effective Date2. A copy of this letter should be
attached to the Form 8832. A copy is enclosed for that purpose.

         This ruling is contingent on X and Z filing, within 120 days from the date of this
letter, to the extent necessary or appropriate, all required federal income tax returns and
information returns (including amended returns) consistent with the requested relief
granted in this letter.

       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.

       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 only to the taxpayer requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.
PLR-124097-15                               4


      In accordance with the power of attorney on file with this office, we are sending a
copy of this letter to X’s authorized representative.


                                     Sincerely,

                                     Associate Chief Counsel
                                     (Passthroughs & Special Industries


                                  By: __________________________
                                     Holly Porter
                                     Branch Chief, Branch 3
                                     Office of Associate Chief Counsel
                                     (Passthroughs & Special Industries)

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



cc: