Grants foreign subsidiary's late disregarded-entity election

Plain-English summary

A foreign limited liability company formed a wholly owned foreign subsidiary and intended to treat it as disregarded from formation. The subsidiary did not timely file a valid Form 8832, but its owner consistently reported it as a disregarded entity. The owner represented that the request did not use hindsight, would not lower aggregate tax liability, and would not prejudice the government. The IRS concluded that the regulatory-election relief standards were met and granted 120 days to file Form 8832 with the intended effective date. The owner also had to file all required open-year returns, including Forms 5471 and 8858 when applicable, consistently with the relief.

Ruling snapshot

• Question: Could the wholly owned foreign subsidiary make a late election to be disregarded from its formation date?
• Outcome: Approved, with 120 days to file Form 8832 and consistent open-year returns.
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201827004 Third Party Communication: None
Release Date: 7/6/2018 Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
Person To Contact:
-------------------------------- - ------- -------------------- - ID No. ------------------
------------------------------------------------------------ Telephone Number:
------------ --------------------
------------------------------------------------------ Refer Reply To:
--------------------------------------------------------- CC:PSI:01
PLR-130300-17
Date:
April 04, 2018

Legend

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

Y = ------------------------------------------------------------------------

Country = ---------

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

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

This ruling is in response to your request dated October 2, 2017, submitted on behalf of
Y, requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to elect to be treated as a disregarded entity for federal
income tax purposes.

                                                 FACTS

According to the information submitted, X is a foreign limited liability company. On Date
1, X’s wholly owned foreign subsidiary, Y, was formed under the laws of Country.

Y represents that it intended to elect to be treated as a disregarded entity effective Date

1. However, Y failed to timely file a valid Form 8832, Entity Classification Election, to
   elect to be treated as a disregarded entity for federal tax purposes.

X represents that it consistently reported income treating Y as a disregarded entity. X
also represents that granting relief will not prejudice the interests of the government and
that hindsight is not involved in seeking relief to file a late election. X further represents

that such relief would not result in a lower tax liability in the aggregate for all years to
which the request applies. Finally, X represents that it acted reasonably and in good
faith.

                                LAW AND ANALYSIS

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 301.9100-1(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

Based solely 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, Y

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 1. A copy of this letter should be attached to the
Form 8832.

This ruling is contingent on the owner of Y filing within 120 days of this letter all required
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 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.

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.

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

                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)


                                      Joy C. Spies

                                By:
                                      Joy C. Spies
                                      Senior Technician Reviewer, Branch 1
                                      (Passthroughs & Special Industries)

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

cc: