Foreign entity gets more time for disregarded status election

Plain-English summary

A foreign entity's owner became a U.S. tax resident and intended the entity to be classified as disregarded for federal tax purposes. The entity did not timely file Form 8832 to make that classification effective on the intended date. The IRS concluded that the entity satisfied the standards for a discretionary extension under the section 301.9100 regulations. It granted 120 days to file the election with the ruling attached. Relief was also conditioned on the entity and its owner filing all required tax and information returns for open years, including Form 8858, consistently with the requested classification.

Ruling snapshot

• Question: May the foreign entity receive extra time to elect disregarded-entity classification effective on the intended date?
• Outcome: approved, with 120 days to file Form 8832 and all required consistent returns
• 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: 201752004
Release Date: 12/29/2017
Index Numbers: 7701.00-00, 9100.31-00

                                                                  Person To Contact:
---------------------                                             -----------------------, ID No. -------------------
----------------------------                                      ---------------------------------------------------
------------------------------                                    Telephone Number:
-----------------------------                                     ----------------------
                                                                  Refer Reply To:
                                                                  CC:PSI:B03 – PLR-116454-17
                                                                  Date: September 26, 2017




                                                    LEGEND

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

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

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

D1                =                 ---------------------------

D2                =                 ------------------

D3                =                 ------------------


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

      This letter responds to a letter dated May 3, 2017, submitted on behalf of X
requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to file an election under § 301.7701-3 to be classified as a
disregarded entity for federal tax purposes.
                                               2
PLR-116454-17

                                           FACTS

        The information submitted discloses that X was formed on D1 under the laws of
Country. On D2, X’s owner, A, became a U.S. tax resident. A intended X to be
classified as a disregarded entity for federal tax purposes effective D3. However, X
failed to timely file Form 8832, Entity Classification Election, to be classified as a
disregarded entity for federal tax purposes effective D3.

                                   LAW AND ANALYSIS

        Section 301.7701-3(a) provides, in part, 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 at least two members can elect to be classified as
either an association (and thus a corporation under § 301.7701-2(b)(2)) or a
partnership, and 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)(i) provides that, except as provided in § 301.7701-
3(b)(3), unless the entity 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(b)(2)(ii) provides, in part, that for purposes of § 301.7701-3(b)(2)(i),
a member of a foreign eligible entity has limited liability if the member has no personal
liability for the debts of or claims against the entity by reason of being a member.

       Section 301.7701-3(c)(1)(i) provides, in part, that, except as provided in
§ 301.7701-3(c)(1)(iv) and (v), 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 service center designated on Form 8832.

         Section 301.7701-3(c)(1)(iii) provides, in part, 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 such date is specified on the election form. The effective date
specified on Form 8832 can not be more than 75 days prior to the date on which the
election is filed and can not be more than 12 months after the date on which the election
is filed.

       Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of
time 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 Internal
Revenue Code (Code) except subtitles E, G, H, and I. Section 301.9100-1(b) provides
                                             3
PLR-116454-17

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 an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions 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 under § 301.9100-3 will be
granted when the taxpayer provides the evidence (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer
acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.

                                      CONCLUSION

        Based solely on the facts and representations submitted, we conclude that X has
satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Consequently, X is
granted an extension of time of one hundred twenty (120) days from the date of this
letter to elect under § 301.7701-3 to be classified as a disregarded entity effective D3.
X must file Form 8832 within the extension period with the appropriate service center,
with a copy of this letter attached.

        This ruling is contingent on X and its owner filing within 120 days of the date of
this letter all required federal income tax and information returns (including amended
returns) for all open years consistent with the requested relief. These returns must
include, but are not limited to, Form 8858, Information Return of U.S. Persons With
Respect To Foreign 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.

        We express no opinion concerning the assessment of any interest, additions to
tax, additional amounts, or penalties for failure to file a timely income tax or information
return with respect to any taxable year that may be affected by this ruling. For example,
we express no opinion as to whether a taxpayer is entitled to relief from any penalty on
the basis that the taxpayer had reasonable cause for failure to file timely any income tax
or information returns.

       Except for the specific ruling above, we express or imply no opinion concerning
the federal tax consequences of the facts of this case under any other provision of the
Code. 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.
                                             4
PLR-116454-17


      This ruling is directed only to the taxpayer requesting it. According to
§ 6110(k)(3) of the Code, this ruling may not be used or cited as precedent.

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

       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.

                                              Sincerely,

                                              Associate Chief Counsel
                                              (Passthroughs & Special Industries)



                                          By:_/s/____________________________
                                             Richard T. Probst
                                             Senior Technician Reviewer, Branch 3
                                             Office of the Associate Chief Counsel
                                             (Passthroughs & Special Industries)



Enclosures: Copy of this letter
            Copy for § 6110 purposes