Foreign LLC gets extra time to elect partnership treatment via a late Form 8832

Plain-English summary

A foreign limited liability company, owned by a U.S. citizen living abroad
and a foreign entity, wanted to be treated as a partnership for U.S. federal
tax purposes, which it elects by filing Form 8832 (the "check-the-box"
form). It intended that treatment to start on a specific date but
inadvertently failed to file the form on time. The company asked the IRS for
relief under Treasury Regulation § 301.9100-3, and the IRS granted a 120-day
extension to file Form 8832 effective as of the intended date. The relief is
contingent on the company and its U.S. owner filing all consistent returns
for open years, including the international information returns (Form 8865
for foreign partnerships and Form 5471 for foreign corporations) that
reflect the deemed liquidation that results from the classification change.
The IRS did not decide whether the entity is actually eligible to make the
election. U.S. owners of foreign entities care because the wrong (or missed)
classification election can trigger very different U.S. tax and reporting
obligations abroad.

Ruling snapshot

• Question: May a foreign eligible entity get more time to file the Form 8832 electing partnership classification?
• Outcome: Approved (120-day extension under § 301.9100-3; eligibility not decided)
• Key authorities: Treas. Reg. § 301.7701-3(b), (c), (g); Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

                                                            Third Party Communication: None

Number: 201918010 Date of Communication: Not Applicable
Release Date: 5/3/2019
Person To Contact:
Index Number: 7701.00-00, 9100.00-00, ----------, ID No. ----------
9100.31-00 Telephone Number:
----------
---------- Refer Reply To:
---------- CC:PSI:B03
---------- PLR-122781-18
Date:
---------- January 28, 2019

Legend

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

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

A = ----------

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

Date1 = ----------

Date2 = ----------

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

     This letter responds to a letter dated July 23, 2018, and subsequent

correspondence, submitted on behalf of X and requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations for X to file an entity
classification election to be treated as a partnership for federal income tax purposes.
PLR-122761-18

                                       FACTS

   The information submitted states that X was formed as a limited liability company

by A and Y under the laws of Country on Date1. A is a U.S. citizen living abroad in
Country and Y is a foreign entity. X represents that it is a foreign eligible entity eligible
to elect to be classified as a partnership for federal tax purposes as of Date2. X failed
to timely file Form 8832, Entity Classification Election, to be classified as a partnership
for federal tax purposes effective Date2.

                               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. Elections are necessary only when an
eligible entity does not want to be classified under the default classification or when an
eligible entity chooses to change its classification.

   Section 301.7701-3(b) provides default classification for an eligible entity that

does not make an election. Section 301.7701-3(b)(2)(i) provides that, unless the entity
elects otherwise, a foreign eligible entity is (A) a partnership if it has two 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(c)(1)(i) provides 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, Entity Classification Election, with the appropriate service center.
Under § 301.7701-3(c)(1)(iii), this election will be effective on the date specified by the
entity on Form 8832 or on the date filed if no such date is specified. The date specified
on Form 8832 cannot be more than 75 days prior to the date on which the election is
filed and no more than 12 months after the date the election is filed.

   Section 301.7701-3(g)(1)(ii) provides that if an eligible entity classified as an

association elects under § 301.7701-1(c)(1)(i) to be classified as a partnership, the
following is deemed to occur: The association distributes all of its assets and liabilities to
its shareholders in liquidation of the association, and immediately thereafter, the
shareholders contribute all of the distributed assets and liabilities to a newly formed
partnership.

   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) provides
PLR-122761-18

that the term “regulatory election” includes an election whose due date is prescribed by
a regulation published in the Federal Register.

    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 extension 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 a taxpayer provides evidence to establish to the
satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good
faith, and (2) the granting of relief will not prejudice the interests of the government.

                                  CONCLUSION

    Based solely on the information submitted and the representations made, we

conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
As a result, X 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
partnership effective Date2. A copy of this letter should be attached to the Form 8832.

    This ruling is contingent on X and A filing, within 120 days from the date of this

letter, all required federal income tax returns and information returns (including
amended returns) for all open years consistent with the requested relief (including the
application of § 301.7701-3(g)(1)(ii)). These returns must include, but are not limited to,
Form 8865, Information Return of U.S. Persons With Respect to Certain Foreign
Partnerships, and Form 5471, Information Return of U.S. Persons With Respect to
Certain Foreign Corporations, 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 described above under any other provision of
the Code and the regulations thereunder. 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.

   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.

  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.
PLR-122761-18
In accordance with the power of attorney on file with this office, we are sending
copies of this letter to X’s authorized representatives.

                                 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