Foreign entity receives 120 days to make a late disregarded-entity election

Plain-English summary

A foreign entity wholly owned by a U.S. citizen was formed to hold interests in another entity. It became relevant for U.S. tax purposes on a redacted date and intended to be classified as disregarded from that date, but it did not timely file Form 8832. The IRS found that the entity met the standards for discretionary regulatory-election relief. It granted 120 days to file Form 8832 with the requested effective date. The relief was conditioned on the entity and its owner timely filing all required tax and information returns, including any necessary Forms 8858 or amended returns, consistently with disregarded-entity treatment. The ruling also stated that the election would be ignored for section 965 computations if recognizing it would change a U.S. shareholder's section 965 elements. The IRS did not determine whether the foreign entity was otherwise eligible for the election or excuse any late-filing penalties.

Ruling snapshot

• Question: May the wholly owned foreign entity make a late election to be disregarded as separate from its U.S. owner?
• Outcome: approved (the entity received 120 days to file Form 8832, subject to return-filing conditions)
• Key authorities: Treas. Reg. §§ 301.7701-2, 301.7701-3, 301.9100-1, 301.9100-3, and 1.965-4(c)(2)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202019020
Release Date: 5/8/2020

                                                          Third Party Communication: None

Index Numbers: 7701.00-00, 9100.00-00,
Date of Communication: Not Applicable
9100.31-00

                                                          Person To Contact:

---------------------------------------- ------------------------, ID No. -----------------
----------------------- Telephone Number:
------------------ ---------------------
Refer Reply To:

                                                          CC:PSI:B03

                                                          PLR-119043-19
                                                          Date:
                                                          February 05, 2020

                                               LEGEND

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

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

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

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

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

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

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

   This letter responds to a letter dated August 5, 2019, submitted on behalf of X by

its authorized representatives, 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 classified as a disregarded entity for federal tax purposes.

                                                      FACTS

 The information submitted states that X was formed under the laws of Country on

Date1 and became relevant for U.S. tax purposes on Date2. X is wholly owned by A, a

PLR-119043-19 2

U.S. citizen. X was formed by A to hold interests in Y. X and A represent that X is a
foreign entity eligible to elect to be classified as a disregarded entity. However, X
inadvertently failed to timely file a Form 8832, Entity Classification Election, electing to
classify X as a disregarded entity 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. 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, 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 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 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 cannot be more than 12
months after the date the election is filed.

  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 (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.

  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. Under § 301.9100-3, a

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request for relief will be granted when a taxpayer provides 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 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 disregarded as an
entity separate from its owner effective Date2. A copy of this letter should be attached
to the Form 8832. A copy is enclosed for that purpose.

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

letter, to the extent necessary or appropriate, all required federal income tax returns and
information returns (including amended returns) consistent with the requested relief
granted in this letter. These returns include, but are not limited to, Forms 8858,
Information Return of U.S. Persons with Respect to Foreign Disregarded Entities
(FDEs) and Foreign Branches (FBs), 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.

   If applicable, X’s election to be classified as a disregarded entity effective Date2

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) of
the Income Tax Regulations.

  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.

  We express no opinion concerning the assessment of any interest, additions to

tax, additional amounts, or penalties for failure to file a timely 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.

 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

PLR-119043-19 4

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.

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

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

cc: