Late relief granted to elect partnership classification

Plain-English summary

A foreign business entity, owned by foreign persons, wanted to be classified as a partnership for U.S. federal tax purposes once it became relevant to U.S. tax, but it missed the deadline to file Form 8832, the "check-the-box" entity classification election. It asked the IRS for extra time under Treas. Reg. § 301.9100-3, which permits a late regulatory election when the taxpayer acted reasonably and in good faith and the government is not prejudiced. The IRS found the standard satisfied and granted 120 days from the date of the letter to file Form 8832 electing partnership treatment effective the relevant date, conditioned on the entity and its owners filing all required returns (including Form 8865 for foreign partnerships) consistent with the relief. The IRS cautioned that granting the extension is not a ruling that the entity is actually eligible to make the election, and expressed no opinion on penalties. Foreign entities that missed the check-the-box deadline would care: this is the standard route to obtain partnership classification late.

Ruling snapshot

• Question: May the foreign entity get a late extension under § 301.9100-3 to file Form 8832 electing to be classified as a partnership?
• Outcome: approved (120-day extension granted)
• Key authorities: Treas. Reg. § 301.7701-3 (check-the-box classification and election); Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201837013                                            Third Party Communication: None
Release Date: 9/14/2018                                      Date of Communication: Not Applicable
Index Numbers: 7701.02-00, 9100.00-00,
              9100.31-00                                     Person To Contact:
                                                             [redacted], ID No. [redacted]
[redacted]         Telephone Number:
[redacted]              [redacted]
[redacted]                                       Refer Reply To:
[redacted]                              CC:PSI:B03
                                                             PLR-137533-17
                                                             Date:
                                                             June 18, 2018




                                                       LEGEND

X            = [redacted]
               [redacted]

Country = [redacted]

Date 1       = [redacted]

Date 2       = [redacted]


Dear [redacted]:

       This letter responds to a letter dated December 15, 2017, and subsequent
correspondence, submitted on behalf of X by its authorized representative, requesting
an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations to file an election under § 301.7701-3 to treat X as a partnership for federal
tax purposes.

                                                       FACTS

       X was formed under the laws of Country on Date 1. The ownership interests in X
are held by foreign persons, but X became relevant for U.S. tax purposes on Date 2. X
represents that it is a foreign entity eligible to elect to be classified as a partnership for
federal tax purposes. However, X failed to timely file Form 8832, Entity Classification
Election, to be treated as a partnership for federal tax purposes effective Date 2.



                                   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 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, unless it 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 that 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 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 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.

       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
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)
defines a 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.

      Section 301.9100-2 provides the rules governing automatic extensions of time for
making certain elections.


        Section 301.9100-3 provides extensions of time for making regulatory elections
that do not meet the requirements of § 301.9100-2. Section 301.9100-3(a) provides
that requests for relief subject to § 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 information submitted and the representations made, we
conclude that X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a
result, X is granted an extension of time of 120 days from the date of this letter to file a
properly executed Form 8832 with the appropriate service center electing to be treated
as a partnership effective Date 2. A copy of this letter should be attached to the Form
8832.

        This ruling is contingent on X and its owners filing within 120 days from the date
of this letter all required federal income tax and information returns (including amended
returns) for all years consistent with the requested relief. These returns must include,
but are not limited to, Form 8865, Return of U.S. Persons With Respect to Certain
Foreign Partnerships, 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 as expressly provided herein, we express or imply no opinion concerning
the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. 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.

      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.

        Pursuant to 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: ___________________________________
                                    Caroline E. Hay
                                    Assistant to the Branch Chief, Branch 3
                                    Office of Associate Chief Counsel
                                    (Passthroughs & Special Industries)


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



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