IRS grants foreign entity late partnership election

Plain-English summary

A foreign eligible entity became owned by two foreign entities with limited liability before its ownership was transferred directly and indirectly under a newly formed U.S. corporation. Its default federal classification was an association taxable as a corporation, but it intended to be treated as a foreign partnership beginning the day before the U.S. ownership transfer. The entity did not file Form 8832 by the deadline. The IRS accepted its representations that it acted reasonably and in good faith and that relief would not prejudice the government. It granted 120 days to file the partnership election, while expressing no opinion on later ownership changes and preventing the election from changing applicable Section 965 elements.

Ruling snapshot

• Question: Could the foreign eligible entity make a late Form 8832 election for partnership classification?
• Outcome: Approved.
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3, and 1.965-4

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202130010 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:B03
PLR-125862-20
Date:
April 30, 2021

                                                LEGEND

X = ------------------------------------------------------------------------------------------------
-----------------------
Y = ------------------------------------------------------------------------------------------------
-----------------------
Z = -----------------------------
n = ----
A = -----------------------------
Country = -------------
Year = -------
Date 1 = ------------------------
Date 2 = -----------------
Date 3 = -------------------
Date 4 = -------------------
State = -------------

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

   This letter responds to a letter dated April 20, 2020, and subsequent

correspondence, submitted on behalf of X by X’s authorized representative, 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 foreign partnership
for federal tax purposes.

                                                 FACTS

   According to the information submitted, X was formed in Year under the laws of

Country. X represents that at the time, it was wholly owned by a foreign entity formed
under the laws of Country (Parent). On Date 1, Parent formed Y under the laws of
PLR-125862-20 2

Country and transferred all ownership interests of X to Y. On Date 2, Y transferred n
percent of the interests it held in X to Z, a newly formed subsidiary of Y formed under
the laws of Country. As a result, X became owned by Y and Z. On Date 4, Parent
transferred all of its interests in Y to A, a newly formed US corporation incorporated
under the laws of State, resulting in X being owned directly and indirectly owned by a
U.S. corporation.

    X represents that on Date 3, the day before the transfer of interests in Y to A, X

was a foreign eligible entity having two owners and limited liability and its default entity
classification for U.S. tax purposes was an association taxable as a corporation. X
intended to be classified as a foreign partnership for federal tax purposes effective
Date 3. However, X did not timely file Form 8832, Entity Classification Election, to elect
to be classified as a foreign partnership effective Date 3.

   X represents that it acted reasonably and in good faith. Further, X represents

that the interests of the Government will not be prejudiced for all taxable years affected
by the election by granting the relief sought.

                               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) provides guidance on the classification of a foreign

eligible entity for federal tax purposes. Generally, a foreign eligible entity is treated as
an association taxable as a corporation if all members have limited liability, unless the
entity makes an election to be treated otherwise.

    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 on which 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)
PLR-125862-20 3

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 an
election. Section 301.9100-2 provides the standards the Commissioner will use to
determine whether to grant an automatic extension 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 request for relief will be granted
when the taxpayer provides evidence (including affidavits described in § 301.9100-3(e))
to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably
and in good faith, and 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 X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. 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 and elect to be classified as a
partnership for federal tax purposes, effective Date 3. We express or imply no opinion
concerning the subsequent events or the ownership changes taking place after Date 3.
A copy of this letter should be attached to the Form 8832.

   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.

    If applicable, the entity classification 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).

   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) of

the Code provides that it may not be used or cited as precedent.
PLR-125862-20 4

  In accordance with the power of attorney on file with this office, we are sending a

copy of this letter to X’s authorized representative.

                                 Sincerely,

                                 Associate Chief Counsel
                                 (Passthroughs & Special Industries)




                              By:_________________________
                                 Wendy Kribell
                                 Senior Technician Reviewer, Branch 3
                                 Office of Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosures (2)
A copy of this letter
A copy for § 6110 purposes

cc: