Grants extra time to file a branch-profits-tax waiver

Plain-English summary

A foreign corporation had conducted a U.S. real-property leasing business through a partnership, then received and immediately sold the property and represented that it completely terminated its U.S. business. Its accountant filed Form 1120-F for that year but omitted Form 8848, the waiver extending the assessment period for branch profits tax that is required for complete-termination treatment. The IRS discovered the omission during an examination, after which the corporation requested discretionary filing relief. The IRS concluded that the corporation met the good-faith and government-prejudice standard in Treasury Regulation section 301.9100-3. It granted 60 days to file a signed Form 8848 with an amended Form 1120-F, without deciding whether the corporation otherwise qualified to file the form.

Ruling snapshot

• Question: Could the foreign corporation receive extra time to file Form 8848 for the year it claimed complete termination of its U.S. business?
• Outcome: Approved.
• Key authorities: IRC § 884; Treas. Reg. §§ 1.884-1, 1.884-2, 1.884-2T, and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201813004
Release Date: 3/30/2018
Third Party Communication: None
Date of Communication: Not Applicable
Index Number: 884.08-10, 9100.00-00

Person To Contact:
[redacted], ID No. [redacted]
Telephone Number:
[redacted]
Refer Reply To:
CC:INTL:BR1
PLR-127055-17
Date:
January 03, 2018

TY: [redacted]

Legend

Taxpayer = [redacted]
Date 1 = [redacted]
Country A = [redacted]
Percentage = [redacted]
U.S. Partnership = [redacted]
Tax Year = [redacted]
U.S. Real Property = [redacted]
Accountant = [redacted]

Dear [redacted]:

This is in reply to a letter dated [redacted] requesting an extension of time under
Treas. Reg. § 301.9100-3 for Taxpayer to file a Form 8848, Consent to Extend the Time
to Assess the Branch Profits Tax Under Regulations Sections 1.884-2(a) and (c). The
ruling contained in this letter is based upon facts and representations submitted by
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 support of

PLR-127055-17 2

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

FACTS

Taxpayer is a corporation that was organized in Date 1 under the laws of Country A.
Taxpayer does not have an office or any employees in the United States. Taxpayer
holds a Percentage interest in U.S. Partnership and serves as its managing member.
U.S. Partnership does not have an office or any employees. Up to and including Tax
Year, Taxpayer, through U.S. Partnership, was engaged in the leasing of U.S. Real
Property pursuant to net leases. Since Taxpayer’s formation, including Tax Year,
Accountant has been solely responsible for the preparation of Taxpayer’s Forms 1120-
F, U.S. Income Tax Return of a Foreign Corporation. For the tax years prior to Tax
Year, Accountant reported Taxpayer’s U.S. Real Property leasing income on its Forms
1120-F as income effectively connected with the conduct of a U.S. trade or business
pursuant to an election made under section 882(d) of the Internal Revenue Code.
Accountant also reported Taxpayer’s branch profits tax under section 884, if any, on the
Forms 1120-F.

In Tax Year, U.S. Partnership distributed to Taxpayer its interest in the U.S. Real
Property, and Taxpayer immediately sold its interest in the U.S. Real Property to an
unrelated corporation, within the meaning of Treas. Reg. § 1.884-2T(a)(2)(iv). At the
end of Tax Year, Taxpayer did not have any assets from which it derived income or with
respect to which a disposition would result in gain constituting income effectively
connected with the conduct of a U.S. trade or business. Taxpayer’s interest in U.S.
Partnership no longer constituted a U.S. asset, within the meaning of Treas. Reg. §
1.884-1(d)(1). Accountant prepared and filed Taxpayer’s Form 1120-F for Tax Year but
did not attach a Form 8848 to the return.

The Internal Revenue Service (IRS) discovered that a Form 8848 had not been
attached to Taxpayer’s Form 1120-F for Tax Year during an examination of the Form
1120-F. Taxpayer subsequently consulted its legal adviser and took action to request
an extension of time to file a Form 8848 under Treas. Reg. §301.9100-3. Taxpayer has
notified the IRS examining agent of this request.

LAW AND ANALYSIS

Treas. Reg. § 1.884-2T(a)(1) provides, in relevant part, that “[a] foreign corporation shall
not be subject to the branch profits tax for the taxable year in which it completely
terminates all of its U.S. trade or business within the meaning of [Treas. Reg. § 1.884-
2T(a)(2)].” Taxpayer represents, as required by Treas. Reg. § 1.884-2T(a)(2):

(1) At the close of Tax Year, Taxpayer did not own any U.S. assets (within the
meaning of Treas. Reg. § 1.884-1(d)(1));

PLR-127055-17 3

(2) Neither Taxpayer nor a related corporation (within the meaning of Treas. Reg.
§ 1.884-2T(a)(2)(iv)) has used or will use, directly or indirectly, in the conduct
of a trade or business in the United States at any time during the three-year
period following the close of Tax Year: (a) any of the U.S. assets of the
terminated U.S. trade or business; (b) any property attributable to those
assets; or (c) any property attributable to effectively connected earnings and
profits of Taxpayer for Tax Year; and

(3) Taxpayer did not have any income that was, or was treated as, effectively
connected income during the three-year period following the close of Tax
Year.

Treas. Reg. § 1.884-2T(a)(2)(i)(D) also requires that the foreign corporation execute a
waiver of the period of limitations for the branch profits tax in the year of complete
termination. Treas. Reg. § 1.884-2(a)(2)(ii) provides that this waiver must be executed
on Form 8848, or substitute form, on or before the date (including extensions)
prescribed for filing the foreign corporation’s income tax return for the year of complete
termination and extend the period of assessment of the branch profits tax for the year of
complete termination to a date not earlier than the close of the sixth taxable year
following that taxable year.

Treas. Reg. § 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the standards set forth in Treas. Reg. § 301.9100-3
to make a regulatory election under all subtitles of the Internal Revenue Code except
subtitles E, G, H, and I.

Treas. Reg. § 301.9100-1(b) 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 provides standards for extensions of time for making
regulatory elections when the deadline for making the election is other than a due date
prescribed by statute.

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

Based on the facts and circumstances of this case, we conclude that Taxpayer satisfies
Treas. Reg. § 301.9100-3(a) and hereby grant Taxpayer an extension of time to file a
signed Form 8848 and attach it to an amended Form 1120-F within 60 days from the
date of this ruling letter.

PLR-127055-17 4

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. Specifically, as provided in Treas. Reg. § 301.9100-1(a), the granting of an
extension of time is not a determination that Taxpayer is otherwise eligible to file Form
8848.

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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representatives.

Sincerely,

Elizabeth U. Karzon
Branch Chief, Branch 1
Associate Chief Counsel (International)

Enclosure:
Copy for 6110 purposes

cc: