IRS grants foreign entity late disregarded classification

Plain-English summary

A foreign eligible entity intended to be disregarded as separate from its owner for federal tax purposes but inadvertently missed the Form 8832 deadline. It represented that it acted reasonably and in good faith, did not rely on hindsight, and would have made the election regardless of later tax-law changes and regulations. The IRS concluded that the requirements for discretionary late-election relief were met and granted 120 days to file Form 8832. The owner also had to file all required returns for open years consistently with disregarded treatment. The IRS limited the relief so it could not change applicable Section 965 elements and expressed no opinion on Section 367 or penalties for late returns.

Ruling snapshot

• Question: Could the foreign eligible entity make a late disregarded-entity election?
• Outcome: Approved.
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-3, and 1.965-4

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202130003 Third Party Communication: None
Release Date: 7/30/2021 Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
9100.31-00 Person To Contact:
--------------------------, ID No. ----------------
-------------------------------------- -----------------
------------------------------------------- Telephone Number:
------------------------------ --------------------
--------------------------------- Refer Reply To:
---------------------------- CC:PSI:B01
PLR-117141-20
Date:
February 01, 2021

LEGEND

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

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

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

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

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

This responds to a letter dated July 15, 2020, 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 foreign disregarded entity for
federal tax purposes.

FACTS

According to the information submitted, X was formed on Date 1 under the laws of
Country. X intended to be treated as a disregarded entity for federal tax purposes
effective Date 2. However, X inadvertently failed to timely file Form 8832, Entity
Classification Election, to be treated as a disregarded entity for federal tax purposes.

X represents that it acted reasonably and in good faith, and that the interests of the
government will not be prejudiced by granting relief. X further represents that no
hindsight is involved in seeking the relief requested. X also represents that,
PLR-117141-20 2

if not for inadvertence, X would have made a timely filed election to be treated as a
disregarded entity regardless of the enactment of the Tax Cuts and Jobs Act (TCJA)
and the issuance of regulations relating to the TCJA.

LAW AND ANALYSIS

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 a single owner having limited liability
may elect to be treated as a disregarded entity 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.

Sections 301.9100-1 through 301.9100-3 provide standards that 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 rules for requesting extensions of time for regulatory
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 2. 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.
PLR-117141-20 3

This ruling is contingent on the owners of X filing within 120 days of the date of this
letter all required returns for all open years consistent with the requested relief. These
returns may include, but are not limited to, Form 8858, Information Return of U.S.
Persons With Respect to Disregarded Entities, such that these returns reflect the
consequences of the relief granted in this letter. A copy of this letter ruling should be
attached to any such returns.

If applicable, X’s election to be treated as disregarded as an entity separate from its
owner effective on Date 2 is disregarded for the purpose 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 of X. See § 1.965-4(c)(2).

Except as expressly provided herein, no opinion is expressed or implied concerning the
federal tax consequences of the facts described above under any other provision of the
Code and the regulations thereunder. In particular, no opinion is expressed or implied
regarding the application of section 367 or its underlying regulations to any step in the
transaction. 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
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) provides that
it may not be used or cited as precedent.
PLR-117141-20 4

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

                                               Sincerely,


                                               Joy C. Spies
                                               Joy C. Spies
                                               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

cc: