Foreign entity received late disregarded-entity election relief

Plain-English summary

A foreign eligible entity failed to timely file Form 8832 electing disregarded-entity status from the date it was organized. It represented that it acted reasonably and in good faith and that relief would not prejudice the government. The IRS granted 120 days to file the election with the requested effective date. The owners must also file all required returns for open years consistently with the election, including applicable Forms 5471, 8865, and 8858. Any effect on section 965 elements is disregarded where required by Treasury Regulation section 1.965-4.

Ruling snapshot

• Question: May the foreign entity make a late Form 8832 election to be disregarded from its organization date?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-3, 1.965-4

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                  Washington, DC 20224

Number: 202016007                                                 Third Party Communication: None
Release Date: 4/17/2020                                           Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.31-00
                                                                  Person To Contact:
-----------------------------------                               ----------------------------,
-------------------------                                         ID No. -----------------
----------------------------------                                Telephone Number:
--------------------------------------------------                --------------------
------------------------------------                              Refer Reply To:
                                                                  CC:PSI:B01
                                                                  PLR-112520-19
                                                                  Date:
                                                                  November 20, 2019

LEGEND

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

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

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

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

       This responds to a letter dated May 20, 2019, 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(c) to be treated as a
disregarded entity for federal tax purposes.

FACTS

        According to the information submitted, X was organized under the laws of
Country on Date 1. X represents that it is a foreign entity eligible to elect to be classified
as a disregarded entity. X failed to timely file Form 8832, Entity Classification Election,
to be treated as a disregarded entity for federal tax purposes effective Date 1.

       X represents that it acted reasonably and in good faith. X also represents that
granting the relief requested will not prejudice the interests of the government.

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. An eligible entity with at least two
members can elect to be classified as either an association or a partnership, and an

PLR-112520-19                                  2

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) provides guidance on the classification of a foreign
eligible entity for federal tax purposes. Generally, a foreign eligible entity is treated as
an association if all members have limited liability, unless the entity makes an election
to be treated otherwise. A foreign eligible entity with two or more members, all having
limited liability may elect to be treated as a partnership pursuant to the rules of
§ 301.7701-3(c). Section 301.7701-3(c) provides that an entity classification election
must be filed on Form 8832 and can be effective up to 75 days prior to the date the form
is filed or up to 12 months after the date the form is filed.

       Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of
time to make a regulatory election, or a statutory election (but no more than six 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) defines the term
“regulatory election” as including 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 an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2. Requests for relief under § 301.9100-3 will
be granted when the taxpayer provides evidence to establish that the taxpayer acted
reasonably and in good faith, and that granting relief will not prejudice the interests of
the government.

CONCLUSION

       Based solely on the facts submitted and the representations made, we conclude
that the requirements of § 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 make an election to be
treated as a disregarded entity for federal tax purposes effective Date 1. X should make
the election by filing a properly executed Form 8832 with the appropriate service center.
A copy of this letter should be attached to the form.

       This ruling is contingent on 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) Forms 5471, Information
Return of U.S. Persons With Respect to Certain Foreign Corporations, (ii) Forms 8865,
Return of U.S. Persons With Respect to Certain Foreign Partnerships, and (iii) Forms
8858, Information Return of U.S. Persons With Respect to Disregarded Entities, such

PLR-112520-19                                  3

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.

        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).

       Except as specifically set forth above, we express no opinion concerning the
federal tax consequences of the facts described above under any other provision of the
Internal Revenue Code.

       The ruling contained in this letter is based upon information and representations
submitted by the taxpayer an accompanied by a penalty of perjury statement executed
by the appropriate party. While this office has not verified any of the material submitted
in support of the ruling request, it is subject to verification or 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.

         In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to X's authorized representatives.

                                           Sincerely,

                                           Holly Porter
                                           Associate Chief Counsel
                                           (Passthroughs & Special Industries)

                                      By: Laura C. Fields
                                          Laura C. Fields
                                          Senior Technician Reviewer, Branch 1
                                          Office of Associate Chief Counsel
                                          (Passthroughs & Special Industries)

Enclosures (2)
      Copy of this letter
      Copy of this letter for section 6110 purposes