Foreign entity receives extra time to elect disregarded status

Plain-English summary

A foreign eligible entity intended to be treated as disregarded from its owner for U.S. federal tax purposes but did not timely file Form 8832. The entity represented that it was eligible for disregarded treatment as of the requested effective date. The IRS found that the standards for discretionary late-election relief were satisfied and granted 120 days from the ruling date to file Form 8832. Relief was conditioned on the owner filing all required original or amended returns for open years within the same period. Those filings could include Forms 5471 and 8858 reflecting the consequences of the entity-classification relief.

Ruling snapshot

• Question: May the foreign eligible entity make a late election to be treated as a disregarded entity?
• Outcome: approved
• 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: 201801003                                              Third Party Communication: None
Release Date: 1/5/2018                                         Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00
                                                               Person To Contact:
--------------------                                           ------------------------------,
--------------                                                 ID No. ----------------
-------------------------                                      Telephone Number:
--------------------------                                     ----------------------
------------------------------                                 Refer Reply To:
                                                               CC:PSI:B01
                                                               PLR-112890-17
                                                               Date:
                                                               October 10, 2017

LEGEND

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

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

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

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

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

         This letter responds to your letter dated April 17, 2017 and subsequent
correspondence, submitted on behalf of X by X’s representative, requesting an
extension of time under § 301.9100-3 of the Procedure and Administration Regulations
to file an election under § 301.7701-3(c) to be treated as a disregarded entity for federal
tax purposes.

Facts

       According to the information submitted, X was formed under the laws of Country
on Date 1. As of Date 2, X represents that X is a foreign entity eligible to elect to be
treated as a disregarded entity. However, X did not timely file Form 8832, Entity
Classification Election, electing to treat X as a disregarded entity for federal tax
purposes.

Law and Analysis

PLR-112890-17                                   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. An eligible entity with at least two
members can elect to be classified as either an association 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) 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 301.7701-3(d)(1)(i) provides that, for purposes of § 301.7701-3, a foreign
eligible entity’s classification is relevant when its classification affects the liability of any
person for federal tax or information purposes. The date that the classification of a
foreign eligible entity is relevant is the date an event occurs that creates an obligation to
file a federal tax return, information return, or statement for which the classification of
the entity must be determined. Thus, the classification of a foreign entity is relevant, for
example, on the date that an interest in the entity is acquired which will require a U.S.
person to file an information return on Form 5471.

       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

PLR-112890-17                                  3

       Based solely on the facts 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. A
copy is enclosed for that purpose.

        This ruling is contingent on the owner of X filing within 120 days of the date of
this letter all required returns or amended 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, and (ii) 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(s) 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 taxpayer representative.

                                           Sincerely,

                                           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 of this letter for section 6110 purposes

cc: