Foreign entity gets more time to elect "disregarded entity" tax treatment

Plain-English summary

A foreign company wanted to be treated as a "disregarded entity" for U.S. tax purposes, meaning it is ignored as separate from its single owner and its income flows directly to that owner. Under the "check-the-box" rules in Treasury Regulation 301.7701-3, an eligible entity can pick its classification by filing Form 8832, but this company failed to file the form on time. It asked the IRS for relief under the "9100" regulations, which allow a late election when the taxpayer acted reasonably and in good faith and the government is not prejudiced. The IRS granted a 120-day extension to file Form 8832 effective as of the intended date. The relief is conditional: the company must file all required returns, including Form 8858 for foreign disregarded entities, consistent with the election within 120 days, or the ruling is void. The IRS also noted the election is disregarded for computing certain § 965 amounts, and it took no position on whether the company is otherwise eligible or on any penalties for late filings.

Ruling snapshot

• Question: Should the IRS grant an extension of time to file a late Form 8832 electing to classify the entity as a foreign disregarded entity?
• Outcome: approved (120-day extension, conditioned on consistent return filings including Form 8858)
• 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: 202430004                                             Third Party Communication: None
 Release Date: 7/26/2024                                       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:B01
 -----------------------                                       PLR-121723-23
 ----------------------------                                  Date:
 --------------------------------------                        April 26, 2024




                                                    LEGEND

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

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

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



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

This letter responds to a letter dated October 31, 2023, and subsequent
correspondence, 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 classified as a foreign
disregarded entity effective Date.

                                                     FACTS

According to the information submitted, X was formed under the laws of Country on
Date. X represents it is a foreign entity eligible to be classified as a foreign disregarded
entity effective Date. However, due to inadvertence, X failed to file Form 8832, Entity
Classification Election, electing to classify X as a foreign disregarded entity effective
Date.
PLR-121723-23                                  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, except as provided in § 301.7701-3(b)(3),
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, for purposes of § 301.7701-3(b)(2)(i), 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 provided under § 301.7701-3(b) or change its classification by filing Form
8832 with the service center designated on Form 8832.

Section 301.7701-3(c)(1)(iii) provides, in part, 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 301.9100-1(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 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.
PLR-121723-23                                 3

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 interests of the
government.

                                      CONCLUSION

Based on the facts submitted and the representations made, we conclude that the
requirements of §§ 301.9100-1 and 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 file Form 8832
with the appropriate service center to elect under § 301.7701-3 to be classified as a
foreign disregarded entity for federal tax purposes effective Date. A copy of this letter
should be attached to the Form 8832.

This ruling is contingent upon 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 relief granted in this letter. These returns include
but are not limited to Forms 8858, Return of U.S. Persons with Respect to Foreign
Disregarded Entities, for all required taxable years consistent with X having made a
timely election effective Date to be treated as a foreign disregarded entity for U.S.
federal income tax purposes. If this condition is not met, then this ruling is null and void.
A copy of this letter should be attached to any such returns.

If applicable, this entity classification election to classify X as a foreign 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 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 the facts described above under any other provision of the
Code. Specifically, we express or imply no opinion regarding whether the taxpayer is
otherwise eligible to make the election.

Further, we express or imply 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 or imply 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.

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-121723-23                                            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.

In accordance with the 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:    ___________/s/_______________
                                                     Joy C. Spies
                                                     Senior Technician Reviewer, Branch 1
                                                     Office of the Associate Chief Counsel
                                                     (Passthroughs & Special Industries)


Enclosure
      Copy of Letter for § 6110 purposes



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