Foreign entity obtained 120 days for a late Form 8832

Plain-English summary

A domestic corporate owner formed a foreign eligible entity that defaulted to association status. The taxpayers did not file Form 8832, Form 8858, or Form 5471, but reported the foreign entity's activity consistently with the requested disregarded classification. They also represented that relief would not reduce aggregate tax liability. The IRS granted 120 days to file Form 8832 effective on the intended date and required all consistent income-tax and information returns, including Form 8858, within that period. If applicable, the late election cannot alter U.S. shareholders' Section 965 elements.

Ruling snapshot

• Question: Could the wholly owned foreign entity file a late Form 8832 for disregarded status?
• Outcome: approved, subject to election and consistent filings within 120 days
• Key authorities: Treas. Reg. §§ 301.7701-3 and 301.9100-1 through 301.9100-3; IRC § 6501; Treas. Reg. § 1.965-4(c)(2)

Full text (IRS public release)

 Internal Revenue Service                                  Department of the Treasury
                                                           Washington, DC 20224

 Number: 202411003                                         [Third Party Communication:
 Release Date: 3/15/2024                                   Date of Communication: Month DD, YYYY]
 Index Number: 9100.31-00
                                                           Person To Contact:
 ------------------------------------                      -----------------------------------, ID No. -------
 ------------------------------                            -----------------
 -------------------------------------------               Telephone Number:
 ----------------------------                              --------------------
                                                           Refer Reply To:
                                                           CC:PSI:B03
                                                           PLR-112146-23
                                                           Date:
                                                           December 11, 2023


Legend

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

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

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

State =---------------------

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


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

        This letter responds to a request dated June 8, 2023 submitted on behalf of X by
its authorized representative, requesting an extension of time under § 310.9100-3 of the
Procedure and Administration Regulations to elect to classify Y as a disregarded entity
of X, effective Date.

Facts

        X is a corporation organized under the laws of State. On Date, X formed Y as an
entity organized under the laws of Country. X is the sole owner of Y. Y is a foreign
eligible entity and its default entity classification is an association.

      It is represented that neither Form 8832, Entity Classification, Form 8858
Information Returns for U.S. Persons with Respect to Foreign Disregarded Entities
(FDEs) and Foreign Branches (FBs), nor Form 5471, Information Return of U.S.

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Persons with Respect to Certain Foreign Corporations was filed with respect to Y. For
all applicable periods, Y’s activity was reported consistently with the requested relief.

       It is represented that granting relief would not lower the tax liability in the
aggregative for all taxable years affected by the elections than there would have been if
the elections had been timely made.

Law

        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. Elections are necessary only when an
eligible entity does not want to be classified under the default classification or when an
eligible entity chooses to change its classification.

        Section 301.7701-3(b)(2)(i) provides that, except for certain existing entities
described in § 301-7701-3(b)(3), unless a foreign eligible entity elects otherwise, the
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 member that does not
have limited liability.

        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) 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 before 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 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.

        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 to establish to the
satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good
faith, and (2) granting relief will not prejudice the interest of the Government.

PLR-112146-23                                 3

       Section 301.9100-3(b)(1) provides that, except as provided in § 301.9100-
3(b)(3)(i)-(iii), a taxpayer is deemed to have acted reasonably and in good faith if the
taxpayer: (i) requests relief before the failure to make the regulatory election is
discovered by the Internal Revenue Service; (ii) failed to make the election because of
intervening events beyond the taxpayer’s control; (iii) failed to make the election
because, after exercising reasonable diligence (taking into account the taxpayer’s
experience and the complexity of the return or issue), the taxpayer was unaware of the
necessity for the election; (iv) reasonably relied on the written advice of the Internal
Revenue Service; or (v) reasonably relied on a qualified tax professional, including a tax
professional employed by the taxpayer, and the tax professional failed to make, or
advise the taxpayer to make, the election.

       Section 301.9100-3(b)(3) provides that a taxpayer is deemed to not have acted
reasonably and in good faith if the taxpayer: (i) seeks to alter a return position for which
an accuracy-related penalty has been or could be imposed under section 6662 at the
time the taxpayer requests relief and the new position requires or permits a regulatory
election for which relief is requested; (ii) was informed in all material respects of the
required election and related tax consequences, but chose not to file the election; or (iii)
uses hindsight in requesting relief.

      Section 301.9100-3(c)(1) provides the standards the Commissioner will use to
determine when the interests of the Government are prejudiced.

        Section 301.9100-3(c)(1)(i) provides that the interests of the government are
prejudiced if granting relief would result in a taxpayer having a lower tax liability in the
aggregate for all taxable years affected by the election than the taxpayer would have
had if the election had been timely made (taking into account the time value of money).
Similarly, if the tax consequences of more than one taxpayer are affected by the
election, the Government’s interest are prejudiced if extending the time for making the
election may result in the affected taxpayers in the aggregate, having a lower tax liability
than if the election had been timely made.

       Section 301.9100-3(c)(1)(ii) provides that the interests of the Government are
ordinarily prejudiced if the taxable year in which the regulatory election should have
been made or any taxable years that would have been affected by the election had it
been timely made are closed by the period of limitations on assessment under section
6501(a) before the taxpayer’s receipt of a ruling granting relief under this section.

        Section 6501(a) provides, in relevant part, that as except as otherwise provided
in this section, the amount of any tax imposed by this title shall be assessed within 3
years after the return was filed (whether or not such return was filed on or after the date
prescribed).

       Section 6501(c)(8) provides that in the case of any information which is required
to be reported to the Secretary pursuant to an election under section 1295(b) or under

PLR-112146-23                                   4

section 1298(f), 6038, 6038A, 6038B, 6038D, 6046, 6046A, or 6048, the time for
assessment of any tax imposed by this title with respect to any tax return, event, or
period to which such information relates shall not expire before the date which is 3
years after the date on which the Secretary is furnished the information required to be
reported under such section.

Conclusion

       Based on the information provided and representations made, we conclude the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly, Y is
granted 120 days from the date of this letter to file Form 8832 electing to be classified
as disregarded from its owner, effective Date.

         Additionally, within 120 days from the date of this letter, X shall file all required
federal income tax and informational returns (including amended returns, if applicable)
for all years consistent with the granted relief. These returns must include, but are not
limited to, Form 8858 Information Returns for U.S. Persons with Respect to Foreign
Disregarded Entities (FDEs) and Foreign Branches (FBs). A copy of this letter should
be attached the returns.

        If applicable, this election is disregarded for purposes of determining the amounts
of all section 965 elements of all United States shareholders 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).

       Except for the specific ruling 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. 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 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.

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

                                                 Sincerely,

                                                 Associate Chief Counsel
                                                 (Passthroughs & Special Industries)


                                       By:       _______________________________
                                                 Richard T. Probst
                                                 Senior Technician Reviewer, Branch 3
                                                 Office of the Associate Chief Counsel
                                                 (Passthroughs & Special Industries)


Enclosure:
     Copy for § 6110 purposes

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