IRS allows late disregarded-entity election after inadvertent filing failure

Plain-English summary

A foreign limited company intended to be treated as a disregarded entity for federal tax purposes but inadvertently failed to file Form 8832 on time. It represented that the request did not involve hindsight, that it acted reasonably and in good faith, and that relief would not prejudice the government. The IRS found that the company satisfied the requirements for discretionary late-election relief. It granted 120 days to file Form 8832 with the intended effective date. The relief required the company and its owners to file all required original or amended returns for open years consistently with disregarded-entity treatment, and the election could not alter applicable Section 965 elements.

Ruling snapshot

• Question: Could the foreign limited company file a late election for disregarded-entity treatment?
• 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: 202131002 [Third Party Communication:
Release Date: 8/6/2021 Date of Communication: Month DD, YYYY]
Index Number: 7701.00-00, 9100.00-00,
9100.31-00 Person To Contact:
----------------------, ID No. -----------------
----------------------------------------------- Telephone Number:
----------------------------- -------------------
------------------------------------------------------- Refer Reply To:
------------------------------------------------------- CC:PSI:B3
PLR-100245-21
Date:
May 12, 2021

                                                Legend

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

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

Date = ------------------

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

   This letter responds to a letter dated December 17, 2020, submitted on behalf of

X by its authorized representatives, 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 disregarded entity for federal tax purposes.

                                                 Facts

   Based on the material submitted, X is an entity formed as a limited company

under the laws of Country on Date. X represents it was a foreign entity eligible to elect
to be classified as a disregarded entity for federal tax purposes. However, due to
inadvertence, a Form 8832, Entity Classification Election, to treat X as a disregarded
entity, effective Date was not timely filed.

 X represents that granting the requested relief will not prejudice the interests of

the government. X further represents that no hindsight is involved in seeking the
requested relief and that X has acted reasonably and in good faith.

PLR-100245-21 2

                                 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 that except as provided in § 301.7701-3(b)(3),

unless the entity elects otherwise, a foreign eligible entity is (i) a partnership if it has two
or more members and at least one member does not have limited liability, (ii) an
association if all members have limited liability, or (iii) disregarded as an entity separate
from its owner if it has a single owner that does not have limited liability.

   Section 301.7701-3(c)(1)(i) provides, in part, 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, Entity Classification Election, with the service center
designated on Form 8832.

   Section 301.7701-3(c)(1)(iii) provides that an election made under § 301.7701-

3(c)(1)(i) will be effective on the date specified by the entity on Form 8832 or on the
date filed if no such date is specified on the election form. The effective date specified
on Form 8832 can not be more than 75 days prior to the date on which the election is
filed and can not be more than 12 months after the date on which the election is filed. If
an election specifies an effective date more than 75 days prior to the date on which the
election is filed, it will be effective 75 days prior to the date it was filed.

   Section 301.9100-1(c) provides that the Commissioner in exercising the

Commissioner’s discretion may grant a reasonable extension of time under the rules set
forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory
election (but not 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.

 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 guidelines for granting extensions of time for

making elections that do not meet the requirements of § 301.9100-2. Section 301.9100-
3(a) provides that requests for relief subject to § 301.9100-3 will be granted when the
taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to
establish to the satisfaction of the Commissioner that the taxpayer acted reasonably

PLR-100245-21 3

and in good faith, and the grant of relief will not prejudice the interests of the
Government.

                                    Conclusion

   Based solely on the facts submitted and the representations made, we conclude

that X has satisfied the requirements of § 301.9100-3. As a result, we grant X an
extension of time of one hundred twenty (120) days from the date of this letter to file
Form 8832 with the appropriate service center to elect to be classified as a disregarded
entity for federal tax purposes, effective Date. A copy of this letter should be attached
to the Form 8832.

   This ruling is contingent on X and its owners filing within 120 days of the date of

this letter all required original or amended information and tax returns for all open years
consistent with the requested relief. A copy of this letter should be attached to any such
returns.

  Except as specifically set forth above, we express or imply no opinion concerning

the federal tax consequences of the facts of this case 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, this election to be classified as a disregarded entity is disregarded

for purposes of determining the amounts of all § 965 elements of all United States
shareholders of X if the election otherwise would change the amount of any § 965
element of any such United States shareholder. See § 1.965-4(c)(2).

 We are directing the ruling only to the taxpayer who requested it. Section

6110(k)(3) of the Code provides that it may not be used or cited as precedent.

   Pursuant to a power of attorney on file with this office, we are sending a copy of

this letter to X’s authorized representatives.

PLR-100245-21 4

  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.

                                    Sincerely,
                                    Associate Chief Counsel
                                   (Passthroughs & Special Industries)


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

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

cc: