Reinsurer receives 60 days to make late domestic-corporation election

Plain-English summary

A foreign associated reinsurance company intended to elect domestic-corporation treatment under section 953(d). Its operations manager and tax professional filed returns consistently with that treatment but failed to submit the required election statement, and the company did not discover the omission until later. The company requested relief before the IRS discovered the failure and represented that it was not using hindsight or seeking a lower tax liability. The IRS found that it met the reasonable-cause and government-prejudice standards. It granted 60 days to make the election, conditioned on aggregate tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: May the foreign reinsurer late-file its section 953(d) election to be treated as a domestic corporation?
• Outcome: Approved, with 60 days to make the election and a no-lower-aggregate-tax condition.
• Key authorities: IRC §§ 953(d) and 6072(b); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Rev. Proc. 2003-47

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201807007 [Third Party Communication:
Release Date: 2/16/2018 Date of Communication: Month DD, YYYY]
Index Number: 953.06-00
Person To Contact:
---------------------------- ------------------, ID No. ----------------
---------------------------------------------- Telephone Number:
------------------------------------ ----------------------
---------------------------- Refer Reply To:
CC:INTL:B02
PLR-123448-17
Date:
November 20, 2017

              TY: -------

Legend

Taxpayer = ------------------------------------------------
-----------------------
Country = -----------------------------------
Company = --------------------
Businesses = --------------------------------
CPA = ---------------
Date = -----------------
Year = -------

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

   This is in response to Taxpayer’s letter, submitted by your authorized

representative and received by our office on July 31, 2017, requesting an extension of
time under Treas. Reg. § 301.9100-3 to make the election provided by section 953(d) of
the Internal Revenue Code (Code) to be treated as a domestic corporation for U.S. tax
purposes effective for Year.

  The ruling contained in this letter is predicated upon facts and representations

submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. This office has not verified any of the material submitted in
PLR-123448-17 2

support of the request for a ruling. Verification of the factual information,
representations, and other data may be required as part of the audit process.

     Taxpayer is an associated reinsurance company organized under the laws of

Country. Taxpayer reinsures certain finance and insurance products sold by (a)
Company, a third party unrelated program administrator and (b) related Businesses.
Taxpayer engaged the services of Company to manage its operations, maintain
compliance with all applicable laws and regulations, and prepare Taxpayer’s federal
income tax returns. Company employed CPA to conduct tax compliance management
for its clients, including Taxpayer. CPA has many years of experience with captive
insurance company formations and operations. Both Company and CPA were tasked
with the responsibility of filing Taxpayer’s federal income tax returns, including making
valid elections when appropriate.

   Taxpayer intended to make the section 953(d) election by filing an election

statement with the IRS when filing its corporate income tax return for Year. Further,
Company filed an income tax return on Taxpayer’s behalf consistent with that position
for Year and subsequent years. However, Taxpayer was unaware that such election
was not made. Taxpayer became aware of the missing election in Date and took
corrective action.

     Taxpayer’s failure to make the section 953(d) election was not discovered by the

Internal Revenue Service before Taxpayer submitted its ruling request. In addition,
Taxpayer represents that it does not seek to alter a return position for which the
accuracy-related penalty has been or could have been imposed under section 6662 at
the time Taxpayer requested relief, and the new position requires or permits a
regulatory election for which relief is requested. Finally, Taxpayer represents that it has
not used hindsight to seek an extension of time to make the election. Taxpayer
represents that granting relief will not result in a lower tax liability than it would have had
if it had filed the section 953(d) election timely.

    Treas. Reg. § 301.9100-1(c) provides that the Commissioner has discretion to

grant a taxpayer a reasonable extension of time, under the rules set forth in Treas. Reg.
§ 301.9100-3, to make a regulatory election under all subtitles of the Code, except
subtitles E, G, H, and I.

     Treas. Reg. § 301.9100-1(b) provides that an election includes an application for

relief in respect of tax, and defines a regulatory election as an election whose due date
is prescribed by a regulation, a revenue ruling, revenue procedure, notice, or
announcement.

   Treas. Reg. § 301.9100-3(a) provides that requests for relief subject to this

section will be granted when the taxpayer provides the evidence (including affidavits
described in Treas. Reg. § 301.9100-3(e)) to establish to the satisfaction of the
PLR-123448-17 3

Commissioner that the taxpayer acted reasonably and in good faith, and the grant of
relief will not prejudice the interests of the Government.

    Treas. Reg. § 301.9100-3(b)(1) provides that except as provided in paragraphs

(b)(3)(i) through (iii) of that section, a taxpayer is deemed to have acted reasonably and
in good faith if it meets one of the conditions described in Treas. Reg. § 301.9100-
3(b)(1)(i) through (v).

   Treas. Reg. §301.9100-3(c)(1) provides that relief will be granted only when the

interests of the Government will not be prejudiced.

    Rev. Proc. 2003-47, 2003-2 C.B. 55, 56, provides that the election to be treated

as a domestic corporation under section 953(d), to be effective for a taxable year, must
be filed by the due date prescribed in section 6072(b) (with extensions) for the United
States income tax return that is due if the election becomes effective.

   In the present situation, Rev. Proc. 2003-47 fixes the time to make the election

under section 953(d). Therefore, the Commissioner has discretionary authority under
Treas. Reg. § 301.9100-1(c) to grant Taxpayer an extension of time, provided that
Taxpayer satisfies the standards set forth under Treas. Reg. § 301.9100-3(a).

    Based on the facts and information submitted, we conclude that Taxpayer

satisfies Treas. Reg. § 301.9100-3(a). Accordingly, Taxpayer is granted an extension of
time of 60 days from the date of this ruling letter to make the election provided by
section 953(d), in accordance with the procedural rules set forth in Rev. Proc. 2003-47,
to be treated as a domestic corporation for federal income tax purposes effective for
Year.

   The above extension of time is conditioned on Taxpayer’s tax liability (if any)

being not lower, in the aggregate, for all years to which the section 953(d) election
applies than it would have been if the election had been timely filed (taking into account
the time value of money). No opinion is expressed as to Taxpayer’s tax liability for the
taxable years involved. Further, the granting of the above extension is not a
determination that Taxpayer is otherwise eligible to make the section 953(d) election.
Treas. Reg. § 301.9100-1(a).

    Taxpayer should attach a copy of this letter ruling to its federal income tax return

for the relevant year.

  This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.
PLR-123448-17 4

   Pursuant to a power of attorney on file in this office, a copy of this ruling letter is

being furnished to your authorized representative.

                                    Sincerely,



                                    Kristine A. Crabtree
                                    Senior Technical Reviewer, Branch 2
                                    (International)

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