Foreign insurer receives more time to elect domestic treatment

Plain-English summary

A foreign insurance company intended to elect under section 953(d) to be treated as a domestic corporation and join its parent's consolidated return. The return was prepared and filed as if the election were valid, but the separate election statement was not timely filed with the required IRS office. The company requested relief before the IRS discovered the omission and represented that it had not used hindsight and would not receive a lower aggregate tax liability. The IRS granted 60 days to make the election, subject to the tax-liability condition, but did not rule on the company's eligibility for the election or its entity classification.

Ruling snapshot

• Question: Could the foreign insurance company receive more time to make its section 953(d) election?
• Outcome: Approved, with 60 days to file the election and subject to the stated tax-liability condition.
• Key authorities: IRC § 953(d); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Notice 89-79; Rev. Proc. 2003-47

Full text (IRS public release)

Internal Revenue Service                                         Department of the Treasury
                                                                 Washington, DC 20224

Number: 201905003                                                [Third Party Communication:
Release Date: 2/1/2019                                           Date of Communication: Month DD, YYYY]
Index Number: 953.06-00, 9100.22-00
                                                                 Person To Contact:
------------------                                               ------------------, ID No. --------------------
-------------------------------                                  Telephone Number:
----------------------------------                               ----------------------
--------------------------------                                 Refer Reply To:
----------------------------------------                         CC:INTL:B02
                                                                 PLR-121646-18
                                                                 Date:
                                                                 November 06, 2018

                  TY: -------

Legend
Taxpayer                  =                ------------------
                                           --------------------------
Company X                 =                ----------------------------------
                                           --------------------------
Date 1                    =                ---------------------------
Date 2                    =                ------------------
Country Y                 =                -------------
Z                         =                ------------------------------
Accounting Firm           =                ------------------------------------------
Date 3                    =                ----------------------
Tax Year 1                =                -------

Dear -------------

      This is in response to a letter received by our office on July 11, 2018, submitted
on behalf of Taxpayer by its parent company, Company X, requesting an extension of
time under Treas. Reg. § 301.9100-3 to make the election provided under section
953(d) for Taxpayer’s taxable year ending Date 1.

      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-121646-18                                  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.

FACTS

         On Date 2, Taxpayer was organized under the laws of Country Y and was
licensed to issue various Z insurance contracts. Taxpayer is wholly owned by Company
X. Company X is a parent company of an affiliated group which files a consolidated
federal income tax return under Company X. Taxpayer will be a member of such
affiliated group as a result of its election under section 953(d).

       Taxpayer represents that it meets the requirements to be taxed as an insurance
company for federal income tax purposes. Taxpayer along with Company X have
contracted the services of Accounting Firm to prepare Taxpayer’s federal income tax
returns, including making valid elections, when appropriate.

       Accounting Firm timely Taxpayer’s federal income tax return for tax year ending
in Date 1 pursuant to a valid request to extend the filing due date. In addition,
Accounting Firm prepared and on Date 3, filed Company X’s consolidated federal
income tax return for Tax Year 1 as if a valid section 953(d) election were made to treat
Taxpayer as a domestic corporation and member of the consolidated group. However,
Taxpayer failed to timely file the section 953(d) election statement with the IRS
Plantation, Florida office as prescribed by Rev. Proc. 2003-47, 2003-2 C.B. 55.
Accordingly, Taxpayer did not have a valid section 953(d) election.

         Taxpayer’s failure to make the section 953(d) election was not discovered by the
Internal Revenue Service prior to the time it 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) timely.

LAW AND ANAYLSIS

        Under section 953(d), certain foreign insurance companies may elect to be
treated as domestic corporations for U.S. tax purposes. The substantive and
procedural rules for making a section 953(d) election are contained in Notice 89-79,
1989-2 C. B. 392, and Rev. Proc. 2003-47, 2003-2 C.B. 55. Rev. Proc. 2003-47
provides that the election must be filed by the due date prescribed in section 6072(b)
(including extensions) for the U.S. income tax return that is due if the election becomes
effective. Rev. Proc. 2003-47, section 4.04(2). In addition, an electing corporation must

PLR-121646-18                                 3

use the calendar year as its annual accounting period for U.S. tax purposes, unless it
joins in the filing of a consolidated return and adopts the parent corporation’s tax year.
Notice 89-79, section 1. 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).

        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.

        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):

       (i) Requests relief before the failure to make the regulatory
       election is discovered by the Internal Revenue Service;

       (ii) Failed to make the election because of intervening events beyond the
       taxpayer’s control;

       (iii) Failed to make the election because, after exercising reasonable diligence
       (taking into account the taxpayer’s experience and complexity of the return
       or issue), the taxpayer was unaware of the necessity for the election;

       (iv) Reasonably relied on the written advice of the Internal Revenue Service; or

       (v) Reasonably relied on a qualified tax professional, including a tax
       professional employed by the taxpayer, and the tax professional failed to
       make, or advise the taxpayer to make, the election.

       Further, the Commissioner will grant a reasonable extension of time to make a
regulatory election only when the interests of the Government will not be prejudiced by
the granting of relief. Treas. Reg. § 301.9100-3(c)(1). The interests of the Government
are prejudiced if granting relief would result in a taxpayer having a lower tax liability in
the aggregate for all taxable years affected by the election than the taxpayer would
have had if the election had been timely made (taking into account the time value of
money). Treas. Reg. § 301.9100-3(c)(1)(i).

PLR-121646-18                                  4

       Lastly, Treas. Reg. § 301.9100-1(a) cautions that granting an extension of time to
make an election is not a determination that the taxpayer is otherwise eligible to make
the election.

CONCLUSION

        Based on the facts and information submitted, we conclude that Taxpayer
satisfies Treas. Reg. § 301.9100-3(a). Taxpayer qualifies for an extension of time to
make the election under section 953(d). Taxpayer is deemed to have acted in good
faith, as defined by Treas. Reg. § 301.9100-3(b), and the grant of relief will not prejudice
the interests of the Government. 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 tax year
ending Date 1.

        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). Also, no ruling is granted with respect to Taxpayer’s
entity classification for federal income tax purposes.

      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,

                                       Jeffery G. Mitchell
                                       Branch Chief, Branch 2
                                       (International)

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