Foreign insurer gets time for domestic and small-company elections

Plain-English summary

A foreign property-and-casualty insurer relied on a professional adviser to make elections under sections 953(d) and 831(b), treating it as a domestic corporation and a qualifying small insurance company. The adviser filed the initial domestic-corporation election but failed to supply additional information requested by the IRS, leaving that election invalid and making the insurer ineligible for the small-company election. The insurer nevertheless filed its returns consistently with both intended elections and requested relief before the IRS discovered the failure. The IRS granted 60 days to make the section 953(d) election and 90 days to make the section 831(b) election, subject to an aggregate-tax-liability condition and without deciding substantive eligibility.

Ruling snapshot

• Question: Could the foreign insurer receive more time to elect domestic-corporation and small-insurance-company treatment?
• Outcome: Approved, with 60 days for the section 953(d) election and 90 days for the section 831(b) election.
• Key authorities: IRC §§ 831(b) and 953(d); Treas. Reg. §§ 301.9100-1, 301.9100-3, and 301.9100-8; Rev. Proc. 2003-47; Notice 89-79.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201950003 Third Party Communication: None
Release Date: 12/13/2019 Date of Communication: Not Applicable
Index Number: 953.06-00, 831.00-00,
831.02-00, 9100.00-00 Person To Contact:
----------------, ID No. ------------------
-------------------------- Telephone Number:
------------------- --------------------
------------------------------------------- Refer Reply To:
-------------------------- CC:INTL:B02
------------------------ PLR-112036-19
Date:
September 19, 2019

      TY: ------

LEGEND

Taxpayer = --------------------------------------------
----------------------
Year 1 = ------
Country X = ------------------------------
Professional Advisor = --------------------
Year 2 = ------

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

  This is in response to a letter dated May 20, 2019, submitted on behalf of

Taxpayer by its authorized representative, requesting an extension of time under Treas.
Reg. § 301.9100-3 to make the elections provided under (1) section1 953(d) for Year 1
and (2) section 831(b)(2) effective for Taxpayer’s taxable year ending December 31,
Year 1. Additional information was received on August 7, 2019.

  The ruling contained in this letter is predicated upon facts and representations

submitted by 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
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.

1
Unless otherwise specified, all section references are to the Internal Revenue Code.
PLR-112036-19 2

FACTS

    Taxpayer is a property and casualty insurance company that is organized and

regulated as an insurance company under the laws of Country X. Taxpayer derives all
of its business from issuing various property and casualty insurance contracts.

  Taxpayer represents that it is an insurance company, as defined in section

831(a) by reference to section 816(a), that would qualify for treatment as a non-life
insurance company subject to part II of subchapter L for its taxable year ending
December 31, Year 1, if it were a domestic corporation.

   Taxpayer does not have any employees and its owners are not tax experts.

Taxpayer retained the assistance of Professional Advisor to be responsible for all
aspects of Taxpayer’s U.S. income tax compliance. The services to be provided to
Taxpayer by Professional Advisor under the scope of its engagement were to be
performed by qualified tax professionals. Professional Advisor prepared Taxpayer’s
U.S. federal income tax return for Year 1, which included a section 953(d) election to be
treated as a domestic corporation and a section 831(b) election to be treated as a small
insurance company. Professional Advisor sent a separate section 953(d) election
statement to the IRS pursuant to Notice 89-79, 1989-2 C.B. 392, and Rev. Proc. 2003-
47, 2003-2 C.B. 55. Subsequently, the IRS requested additional information with
respect to Taxpayer’s section 953(d) election; Professional Advisor was responsible for
providing that information to the IRS. In Year 2, Professional Advisor discovered that
Taxpayer did not receive an approval of its section 953(d) election from the IRS,
because a former employee of Professional Advisor did not provide the additional
information in a timely manner.

   Taxpayer represented that it relied on Professional Advisor to file all the

necessary income tax elections, including the section 953(d) election for Taxpayer to be
treated as a domestic corporation and the section 831(b) election for Taxpayer to be
treated as a small insurance company for Year 1.

    Taxpayer represented that Professional Advisor failed to provide the additional

information requested by the IRS in a timely manner. In addition, Professional Advisor
failed to advise Taxpayer of the consequences of failing to make a section 953(d)
election with respect to Year 1. Because the additional information was not timely
provided to the IRS, Taxpayer did not have a valid section 953(d) election in place.
Therefore, it remained a foreign insurance company for U.S. federal income tax
purposes and, as such, Taxpayer was ineligible to make a section 831(b) election.
However, all of Taxpayer’s federal income tax returns have been filed consistent with
the section 953(d) and section 831(b) elections having been properly made.
PLR-112036-19 3

    Taxpayer’s failure to make these elections was not discovered by the IRS before

Taxpayer 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.
Taxpayer represents that it intended to make the section 953(d) election but, having
inadvertently failed to do so, it was ineligible to make the section 831(b) election.
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) and section 831(b)
elections 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, respectively. 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 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 I. In the present situation, 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).

   Section 831(a) provides that taxes, computed as provided in section 11, are

imposed for each taxable year on the taxable income of every insurance company other
than a life insurance company. However, section 831(b) allows certain small
companies to elect to be subject to tax on their taxable investment income only. The
election applies to the taxable year for which the company made the election and, as
long as the company continues to qualify, for all subsequent taxable years unless
revoked with the consent of the Secretary.

   The time and manner to make the section 831(b)(2)(A)(ii) election is not

prescribed by statute but rather is prescribed by Treas. Reg. § 301.9100-8(a)(1).
Pursuant to Treas. Reg. § 301.9100-8(a)(2), the election is to be made by the due date
(taking into account any extensions of time to file obtained by the taxpayer) of the tax
return for the first taxable year for which the election is to be effective by attaching a
statement to the tax return containing the information specified in Treas. Reg.
§ 301.9100-8(a)(3). Accordingly, the section 831(b)(2)(A)(ii) election is a regulatory
election. Treas. Reg. § 301.9100-1(b).
PLR-112036-19 4

  Under Treas. Reg. § 301.9100-1(c), the Commissioner may grant a reasonable

extension of time under the rules set forth in Treas. Reg. §§ 301.9100-2 and 301.9100-3
to make a regulatory or statutory election.

    Treas. Reg. § 301.9100-3(a) provides that requests for relief will be granted

when the taxpayer provides the evidence to establish to the satisfaction of the
Commissioner that it “acted reasonably and in good faith" and that "the grant of relief
will not prejudice the interests of the Government."

  Under Treas. Reg. § 301.9100-3(b)(1), a taxpayer is deemed to have acted

reasonably and in good faith if it:

  (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.

  Under Treas. Reg. § 301.9100-3(b)(3), a taxpayer is deemed not to have acted

reasonably and in good faith if it:

  (i) Seeks to alter a return position for which an accuracy-related penalty has
  been or could be imposed under section 6662 at the time the taxpayer requests
  relief and the new position requires or permits a regulatory election for
  which relief is requested;

  (ii) Was informed in all material respects of the required election and related
  tax consequences, but chose not to file the election; or

  (iii) Uses hindsight in requesting relief.

PLR-112036-19 5

   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).

   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 solely on the facts and information submitted, and the affidavit and other

information provided as required by Treas. Reg. § 301.9100-3(e), Taxpayer qualifies for
an extension of time to make the elections under section 831(b)(2)(A)(ii) and 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 section 953(d) election, in accordance with the procedural
rules set forth in Rev. Proc. 2003-47, to be treated as a domestic corporation for U.S.
federal income tax purposes effective for Year 1. Also, under Treas. Reg. § 301.9100-
3, Taxpayer is granted an extension of time until 90 days following the date of this letter
to make the election provided by section 831(b)(2)(A)(ii), effective for Taxpayer’s
taxable year ending December 31, Year 1.

   The above extension of time is conditioned on Taxpayer’s tax liability (if any) not

being lower, in the aggregate, for all years to which the section 953(d) and section
831(b) elections apply than it would have been had the elections been timely filed
(taking into account the time value of money). No opinion is expressed as to
Taxpayer’s tax liability for the years involved. No opinion is expressed or implied
concerning the federal income tax consequences of any other aspect of this or other
transactions or item of income. Further, the granting of the above extension is not a
determination that Taxpayer qualifies as an insurance company under section 831(c) or
that Taxpayer is otherwise eligible to make the section 953(d) and section 831(b)
elections. Treas. Reg. § 301.9100-1(a). Also, no ruling is granted with respect to
Taxpayer’s entity classification for federal income tax purposes.
PLR-112036-19 6

  This ruling is directed only to the taxpayer who 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 in this office, a copy of this ruling letter is

being furnished to your authorized representative.

                                Sincerely,



                                Kristine A. Crabtree
                                Senior Technical Reviewer, Branch 2
                                Office of Associate Chief Counsel (International)