A foreign entity gets extra time to elect to be taxed as a corporation

Plain-English summary

The "check-the-box" rules under Treasury Regulation section 301.7701-3 let an eligible business entity choose how it is taxed for U.S. purposes by filing Form 8832: a foreign entity whose members all have limited liability defaults to being treated as a corporation (an "association"), but an entity can elect a different classification, and the election generally must be filed on time. Here a foreign eligible entity intended to be classified as an association taxable as a corporation effective on a certain date, but through inadvertence it never filed the Form 8832 to make that election. When a taxpayer misses a regulatory election deadline, section 301.9100-3 lets the IRS grant an extension if the taxpayer acted reasonably and in good faith and granting relief will not prejudice the government. The IRS concluded the entity met those standards and granted a 120-day extension to file the Form 8832 electing corporate classification as of the intended date, conditioned on the entity and its owners filing any required returns (such as Forms 5471, 8865, or 8858) consistent with the relief. This lets the entity lock in the corporate tax treatment it meant to elect despite the missed filing.

Ruling snapshot

• Question: Should a foreign eligible entity that missed the deadline to file Form 8832 get a section 9100 extension to elect classification as a corporation?
• Outcome: approved (120-day extension to file Form 8832 granted)
• Key authorities: Treas. Reg. §§ 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: 201910008                                              Third Party Communication: None
Release Date: 3/8/2019                                         Date of Communication: Not Applicable
Index Numbers:7701.00-00, 9100.00-00,
               9100.31-00                                      Person To Contact:
                                                               ----------------------, ID No. -----------------
----------------------------------------------------           Telephone Number:
------------------------------------                           ---------------------
------------------------------------------------------------   Refer Reply To:
----------------                                               CC:PSI:B3
-------------------------------------------------              PLR-122032-18
-------------------------------------                          Date:
                                                               December 10, 2018




                                                     Legend

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

Country = ------------

Date         = -------------------



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

       This letter responds to a letter dated July 13, 2018, and subsequent
correspondence, submitted on behalf of X by its authorized representatives, requesting
an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations to file an election under § 301.7701-3 to be classified as an association
taxable as a corporation for federal tax purposes.

                                                      Facts

       The information submitted discloses that X was organized on Date under the
laws of Country. X, a foreign eligible entity, intended to be classified as an association
taxable as a corporation effective Date. However, due to inadvertence, a Form 8832,
Entity Classification Election, was not timely filed for X to be classified as an association
taxable as a corporation effective Date.
PLR-122032-18                                  2

                                      Law and Analysis

        Section 301.7701-3(a) provides, in part, 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 except as provided in § 301.7701-
3(b)(3), unless the entity 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, in part, that for purposes of § 301.7701-
3(b)(2)(i), 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. If
an election specifies an effective date more than 75 days prior to the date on which the
election is filed, it will be effective 75 days prior to the date it was filed.

        Section 301.9100-1(c) provides that the Commissioner in exercising the
Commissioner’s discretion may grant a reasonable extension of time under the rules set
forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory
election (but not more than 6 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) provides that the term “regulatory election” includes an
election whose due date is prescribed by a regulation published in the Federal Register.

      Section 301.9100-2 provides the standards the Commissioner will use to
determine whether to grant an automatic extension of time for making certain elections.
PLR-122032-18                                 3


       Section 301.9100-3 provides the guidelines for granting extensions of time for
making 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 facts submitted and the representations made, we conclude
that X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result, we
grant X an extension of time of one hundred twenty (120) days from the date of this
letter to file Form 8832 with the appropriate service center to elect to be classified as an
association taxable as a corporation effective Date. A copy of this letter should be
attached to the Form 8832.

        This ruling is contingent on X and the owners of X 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) Form 5471,
Information Return of U.S. Persons With Respect to Certain Foreign Corporations,
(ii) Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships,
and (iii) Form 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, we express or imply no opinion concerning
the federal tax consequences of the facts of this case under any other provision of the
Code. 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.

       In addition, 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.

      We are directing the ruling only to the taxpayer who requested 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.
PLR-122032-18                               4


       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: _______________________
                                         Mary Beth Carchia
                                         Senior Technician Reviewer, Branch 3
                                         Office of the Associate Chief Counsel
                                         (Passthroughs & Special Industries)


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