Foreign entity received 120 days for a late partnership election

Plain-English summary

A foreign eligible entity intended to be classified as a partnership for federal tax purposes but failed to file Form 8832 on time. It represented that the failure was not motivated by tax avoidance or retroactive tax planning. The IRS found that the regulatory-extension requirements were satisfied and gave the entity 120 days to file the election with the intended effective date. The entity and its owners also had to file all required original or amended returns consistently with the relief, potentially including Forms 8865. If relevant, the election would be ignored for section 965 calculations if it otherwise changed a U.S. shareholder's section 965 elements.

Ruling snapshot

• Question: May the foreign eligible entity make a late election to be classified as a partnership?
• Outcome: approved, with 120 days to file Form 8832 and all consistent returns
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, and 301.9100-1 through 301.9100-3; Treas. Reg. § 1.965-4(c)(2)

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201936008                                              Third Party Communication: None
Release Date: 9/6/2019                                         Date of Communication: Not Applicable
Index Number: 7701.02-00
                                                               Person To Contact:
--------------------------------------------------             ---------------------------, ID No. ---------------
---------------------------------                              -----------------
-----------------------------------------                      Telephone Number:
------------------------------------------------------------   ---------------------
-----------------------------------------------------------    Refer Reply To:
 --------------------------                                    CC:PSI:B03
                                                               PLR-133632-18
                                                               Date:
                                                               June 10, 2019


Legend

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

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

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

Date 2            = -------------------------

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


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

This letter responds to a letter dated October 4, 2018, and additional correspondence,
submitted on behalf of X, 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
treated as a partnership for federal tax purposes.

                                                     FACTS

The information submitted states that X is organized under the laws of Country and was
formed on Date 1. X represents that it is a foreign entity eligible to elect to be classified
as a partnership for federal tax purposes as of Date 2.

X intended to elect to be treated as a partnership for federal tax purposes as of Date 2.
However, X failed to timely file Form 8832, Entity Classification Election, electing to treat
PLR-133632-18                                   2

X as a partnership effective Date 2. X represents that the failure to timely file the
election was not motivated by tax avoidance or retroactive tax planning.

                                    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, except as provided in § 301.7701-
3(c)(1)(iv) and (v), 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, in part, 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 cannot be more than 75 days prior to the date on which the election is
filed and cannot be more than 12 months after the date on which the election is filed.

Section 301.7701-3(d)(1)(i) provides that, for purposes of § 301.7701-3, a foreign
eligible entity's classification is relevant when its classification affects the liability of any
person for federal tax or information purposes. The date that the classification of a
foreign eligible entity is relevant is the date an event occurs that creates an obligation to
file a federal tax return, information return, or statement for which the classification of
the entity must be determined. Thus, the classification of a foreign entity is relevant, for
example, on the date that an interest in the entity is acquired which will require a U.S.
person to file an information return on Form 5471.

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
PLR-133632-18                                3

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)
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.

Section 301.9100-3(a) provides that a request for relief under § 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 (1) the
taxpayer acted reasonably and in good faith, and (2) the grant of relief will not prejudice
the interests of the Government.

                                      CONCLUSION

Based solely on the facts and representations submitted we conclude that X has
satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Accordingly, X is granted
an extension of time of 120 days from the date of this letter to elect to be treated as a
partnership for federal tax purposes effective Date 2. X must make such an election by
filing a properly executed Form 8832 with the appropriate service center. A copy of this
letter should be attached to each of those elections.

This ruling is contingent on X and its owners filing, within 120 days from the date of this
letter, any required returns (including amended returns) consistent with the requested
relief being effective on Date 2. To the extent appropriate, these returns or amended
returns must include, but are not limited to, Forms 8865, Information 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 or amended returns.

If applicable, this election is disregarded for purposes of determining the amounts of all
section 965 elements of all United States shareholders of X if the election otherwise
would change the amount of any section 965 element of any such United States
shareholder. See §1.965-4(c)(2).
PLR-133632-18                               4

Except as specifically ruled above, we express no opinion concerning the federal tax
consequences of the transactions described above under any other provisions of the
Code. This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent. Pursuant to a power of attorney
on file, a copy of this letter is being sent to X’s authorized representatives.

                                            Sincerely,

                                            Associate Chief Counsel
                                            (Passthroughs & Special Industries)



                                         By:_____________________________
                                            Wendy L. Kribell
                                            Senior Counsel, Branch 3
                                            Office of the Associate Chief Counsel
                                            (Passthroughs & Special Industries)