120-day extension for two foreign entities to file check-the-box classification elections

Plain-English summary

Under the "check-the-box" rules of Treas. Reg. § 301.7701-3, a foreign business entity can elect how it is classified for U.S. tax purposes by filing Form 8832: one with two or more owners can be a partnership, and a single-owner entity can be disregarded. Here two foreign entities, formed abroad, wanted one (X) to be classified as a partnership and the other (Y) to be a disregarded entity effective when their classification first became relevant for U.S. tax, but both missed the deadline to file Form 8832. They asked the IRS for relief under the section 301.9100-3 late-election rules. The IRS found they acted reasonably and in good faith and that relief would not prejudice the government, and granted a 120-day extension to file the elections, conditioned on filing all consistent returns and international information forms (such as Forms 5471, 8865, and 8858) for open years. The relief does not decide eligibility to make the elections and expresses no opinion on penalties for any late returns.

Ruling snapshot

• Question: May two foreign eligible entities get more time to file Form 8832 elections to be classified as a partnership and as a disregarded entity?
• Outcome: approved
• Key authorities: Treas. Reg. § 301.7701-3; Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202229024                                              Third Party Communication: None
 Release Date: 7/22/2022                                        Date of Communication: Not Applicable
  9100.00-00, 7701.00-00, 9100.31-00
                                                                Person To Contact:
 --------------------                                           ------------------------, ID No. -----------------
 -------------------------------                                Telephone Number:
 ----------------------------------------                       --------------------
 ------------------------------------------------------------   Refer Reply To:
 -------------------------------                                CC:PSI:B01
                                                                PLR-121616-21
                                                                PLR-121617-21
                                                                Date:
                                                                April 19, 2022




                                                     LEGEND

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

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

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

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

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

 Date 3          =       --------------------

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



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

This letter responds to a letter dated September 14, 2021, submitted on behalf of X and
Y by X's and Y’s authorized representatives, requesting an extension of time under §
301.9100-3 of the Procedure and Administration Regulations for X to file an election
under § 301.7701-3(c) to be classified as a partnership for federal tax purposes, and an
extension of time under § 301.9100-3 of the Procedure and Administration Regulations
for Y to file an election under § 301.7701-3(c) to be classified as a disregarded entity for
federal tax purposes.
PLR-121616-21                                  2


                                           FACTS

The information submitted states that X was formed under the laws of Country on Date
1 and that its classification became relevant for U.S. tax purposes on Date 3. X
represents that it is a foreign entity eligible to elect to be classified as a partnership.
However, X failed to timely file Form 8832, Entity Classification Election, electing to be
classified as a partnership effective Date 3.

The information submitted states that Y was formed under the laws of Country on Date
2 and that its classification became relevant for U.S. tax purposes on Date 3. Y
represents that it is a foreign entity eligible to elect to be classified as a disregarded
entity. However, Y failed to timely file Form 8832, Entity Classification Election, electing
to be classified as a disregarded entity effective Date 3.

                                   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 as provided in § 301.7701-3. Under §
301.7701-3(a), an eligible entity with a single owner can elect to be classified as an
association (and thus a corporation under § 301.7701-2(b)(2)) or to be disregarded as
an entity separate from its owner.

Section 301.7701-3(b)(2)(i)(B) provides that, unless an entity elects otherwise, a foreign
eligible entity is an association if all members have limited liability. Section 301.7701-
3(b)(2)(ii) provides that 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 in § 301.7701-3(b), or to change its classification, by filing a
Form 8832 with the service center designated on the 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 date is specified on the election form. The effective 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 301.7701-3(d)(1)(i) provides that a foreign eligible entity's classification is
relevant when its classification affects the liability of any person for federal tax or
information purposes.
PLR-121616-21                                  3

Section 301.7701-3(d)(2) provides that if the classification of a foreign eligible entity the
classification has never been relevant (as defined in § 301.7701-3(d)(1)), then the
entity's classification will initially be determined pursuant to the default classification
provisions of § 301.7701-3(b)(2) when the classification of the entity first becomes
relevant (as defined in § 301.7701-3(d)(1)(i)).

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
six 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)
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 the 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.

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 (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 facts submitted and representations made, we conclude that the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a result, X and
Y are granted an extension of time of 120 days from the date of this letter to file Form
8832 with the appropriate service center to elect to be classified as a partnership and as
an disregarded entity, respectively, for federal tax purposes effective Date 3. A copy of
this letter should be attached to the Form 8832.

This ruling is contingent on X, Y, and the owners of X filing within 120 days from the
date of this letter all required federal income tax returns and information returns
(including amended returns) for all open years consistent with the requested relief
granted by this letter. These returns may include, but are not limited to, the following
forms: (i) Form 5471, Information Return of U.S. Persons With Respect to Certain
Foreign Corporations, (ii) Form 8865, Return of U.S. Persons With Respect to Certain
Foreign Partnerships, and (iii) Form 8858, Information Return of U.S. Persons With
Respect to Foreign Disregarded Entities and Foreign Branches, 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.
PLR-121616-21                                   4

If applicable, X's and Y’s elections to be classified as a partnership and disregarded
entity respectively are disregarded for purposes of determining the amounts of all
section 965 elements of all United States shareholders of X and of Y 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 any aspect of any transaction or item discussed or
referenced in this letter. 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.

In addition, we express no opinion concerning the assessment of any interest, additions
to tax, additional amounts, or penalties for failure to file a timely income 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 on 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.

In accordance with the power of attorney on file with this office, we are sending a copy
of this letter to your authorized representatives.

                                   Sincerely,

                                   Holly Porter
                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)


                                   By: _____________________
                                       Laura C. Fields
                                       Branch Chief, Branch 1
                                       Office of the Associate Chief Counsel
PLR-121616-21                    5

Enclosure
      Copy for § 6110 purposes



cc: