Foreign entity receives late disregarded-entity election relief

Plain-English summary

A foreign entity's indirect owner intended the entity to be disregarded for federal tax purposes from its formation date, but the entity inadvertently failed to file Form 8832 on time. The IRS concluded that the requirements for discretionary relief under Treas. Reg. §§ 301.9100-1 and 301.9100-3 were satisfied. It granted the entity 120 days to file Form 8832 electing disregarded-entity status effective on the requested date. As a condition of relief, the owner had to file Forms 8858 for every affected tax period through the present within the same 120-day period. Those information returns had to be consistent with a timely entity-classification election.

Ruling snapshot

• Question: May a foreign single-owner entity receive more time to elect disregarded-entity status effective on its formation date?
• Outcome: Approved, with a 120-day extension and Form 8858 filing condition
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201618001                                             Third Party Communication: None
Release Date: 4/29/2016                                       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:B01
------------------------                                      PLR-125740-15
                                                              Date:
                                                              January 28, 2016




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

Member            =         -------------------------------
----------------------------------------------------

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

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

d1                =        ---------------------


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

       This letter responds to a letter dated July 21, 2015, and subsequent
correspondence, submitted on behalf of X, by its authorized representative, requesting
a ruling under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations that X be granted an extension of time to file an election to be classified as
a disregarded entity under § 301.7701-3 effective d1.

FACTS

       The information submitted states that X was formed on d1 as an A under the
laws of Country. X was formed by and is indirectly wholly owned by Member. Member
intended that X be treated as a disregarded entity for federal tax purposes effective d1.
However, due to inadvertence, X failed to file a timely Form 8832, Entity Classification
Election.

LAW AND ANALYSIS

PLR-125740-15                                  2


        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 as provided in § 301.7701-3. An eligible
entity with a single owner can elect to be classified as an association (and thus a
corporation under § 301.7701-2(b)(2)) or to be disregarded as an entity separate from
its owner.

         Section 301.7701-3(b)(2)(i) provides that, unless it 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(c)(1)(i) provides that an eligible entity may elect to be
classified other than as provided in § 301.7701-3(b), or to change its classification, by
filing Form 8832 with the service center designated on Form 8832.

        Section 301.7701-3(c)(1)(iii) provides that an election made under § 301.7701-
3(c)(1)(i) will be effective on the date specified by the entity on Form 8832 or on the
date filed, if no date is specified on the election form. The effective 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 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, or a statutory election (but no more than six months
except in the case of a taxpayer who is abroad), under all subtitles of the Code, except
subtitles E, G, H, and I. Section 301.9100-1(b) defines a regulatory election to include
an election whose due date is prescribed by a regulation published in the Federal
Register.

       Section 301.9100-2 provides the rules governing automatic extensions of time for
making certain elections. Section 301.9100-3 sets forth 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.

        Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3
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.

PLR-125740-15                                3

CONCLUSION

       Based on the facts 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 Form 8832
with the appropriate service center and to elect to be classified as a disregarded entity
for federal tax purposes effective d1. A copy of this letter should be attached to the
Form 8832. A copy is enclosed for that purpose.

        As a condition for this late election relief, Member must file, within 120 days of
the date of this letter, Form 8858, Information Return of U.S. Persons With Respect to
Foreign Disregarded Entities, for all tax periods affected by this ruling, through the
present, consistent with X having made a timely entity classification election. Copies of
this letter should be attached to such forms.

       Except as expressly set forth above, we express or imply no opinion concerning
the federal tax consequences of the facts discussed above under any other provision of
the Code.

      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.

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

                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)


                               By:    Faith P. Colson
                                      Faith P. Colson
                                      Senior Counsel, Branch 1
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)

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


cc: