Foreign entity gets late-election relief to be taxed as a corporation

Plain-English summary

A foreign business entity meant to be treated as a corporation for U.S. tax purposes from the day it was formed, which requires filing Form 8832 (an "entity classification" or "check-the-box" election). It never filed the form on time. In practice, though, everyone involved had treated the entity as a foreign corporation all along, including filing the annual Form 5471 information returns for it. The entity asked the IRS for more time under the § 301.9100-3 relief rules. The IRS agreed, finding the taxpayer acted reasonably and in good faith and that relief would not harm the government, and gave the entity 120 days from the date of the letter to file the Form 8832 electing corporate treatment retroactive to formation. The IRS noted that granting more time does not itself decide whether the entity was actually eligible to make the election.

Ruling snapshot

• Question: May a foreign eligible entity get an extension of time under § 301.9100-3 to file a late Form 8832 electing to be classified as a corporation, effective from its formation date?
• Outcome: Approved (120-day extension granted).
• Key authorities: Treas. Reg. §§ 301.7701-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202317009 Third Party Communication: None
Release Date: 4/28/2023 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:01
------------------------------- PLR-115138-22
Date:
January 30, 2023

                                               LEGEND

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

Country = ---------

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

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

This responds to a letter dated August 2, 2022, 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 for X to file an entity classification election
under § 301.7701-3 to be classified as a corporation for federal tax purposes.

                                                 FACTS

The information submitted states that X is a foreign eligible entity formed under the laws
of Country on Date 1. X is not classified as a corporation under § 301.7701-2(b)(1), (3),
(4), (5), (6), (7), or (8). X intended to be classified as a corporation effective on Date 1.
However, X did not timely file Form 8832, Entity Classification Election, electing to be
treated as a corporation.

X represents that all relevant parties have treated X as a foreign corporation for federal
tax purposes effective Date 1 and thereafter and have filed Form 5471, Information
Return of U.S. Persons With Respect to Certain Foreign Corporations, with respect
to X for each relevant taxable year.
PLR-115138-22 2

                               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 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 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 to elect to be classified other than as provided
in § 301.7701-3(b), an eligible entity must file Form 8832, Entity Classification Election,
with the designated service center. Under § 301.7701-3(c)(1)(iii), the effective date
specified on the Form 8832 can not be more than seventy-five (75) days prior to the
date the form is filed and can not be more than twelve (12) months after the date on
which the form 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 except subtitles E, G, H, and I. Section 301.9100-1(b) defines
the term "regulatory election" as an election whose due date is prescribed by a
regulation published in the Federal Register or a revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin.

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 request for relief will be granted when the taxpayer provides
evidence (including affidavits described in § 301.9100-3(e)) to establish to the
PLR-115138-22 3

satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good
faith, and (2) 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 corporation for federal tax purposes effective Date 1. X must 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.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the
Internal Revenue Code (Code) provides that it may not be used or cited as precedent.

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

The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and is accompanied by a penalty of perjury statement
executed by the 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.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent
to X's authorized representatives.

                                      Sincerely,

                                      Holly Porter
                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)


                                By:
                                      Caroline E. Hay
                                      Senior Technician Reviewer, Branch 1
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes
PLR-115138-22 4

cc: ----------------------------------
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