PLR 202552011: Late Entity Classification Election Relief

Foreign Entity Granted 120-Day Grace Period for Partnership Status

The IRS granted a foreign entity a 120-day extension to file Form 8832, "Entity Classification Election," and elect to be treated as a partnership for federal tax purposes. The entity missed the original deadline due to inadvertence but demonstrated good faith in seeking relief.

The Mistake: How a Check-the-Box Election Was Missed

The company in question is a foreign entity. Under Treasury Regulation Section 301.7701-3, often called the "check-the-box" regulations, business entities that aren't automatically classified as corporations can elect their classification for federal tax purposes. These "eligible entities" use Form 8832, "Entity Classification Election," to make this choice.

However, the default classification for a foreign eligible entity depends on whether its members have limited liability. If at least one member lacks limited liability and the entity has two or more members, the default is partnership status. If all members have limited liability, the default is corporate status. To be treated as a partnership, this particular foreign entity needed to affirmatively elect that status by filing Form 8832.

The company failed to file Form 8832 by the deadline. The IRS stated the failure was due to inadvertence. Critically, the company represented that it, along with its owners, had filed all tax returns consistent with the desired partnership classification since its inception.

The Fix: Why the IRS Accepted the Excuse

The IRS granted the company relief under Treasury Regulation § 301.9100-3, which outlines the requirements for extensions of time for making elections that do not meet the automatic extension criteria. Under this regulation, the IRS grants relief only if the taxpayer provides evidence establishing that (1) the taxpayer acted reasonably and in good faith, and (2) granting relief will not prejudice the government's interests. Affidavits are explicitly noted as evidence.

The IRS concluded these standards were met based on the facts and representations made by the company. Specifically, the company represented that it, along with its owners, had filed all tax returns consistent with the desired partnership classification since its inception.

As a result, the IRS ruled that the company has 120 calendar days from the date of the ruling to file Form 8832, the entity classification election, to be classified as a partnership effective 'Date 2'. The IRS instructed the company to attach a copy of the letter ruling to the Form 8832 when filed.

The IRS included the standard disclaimer that, except for the specific ruling regarding the late election, it expressed no opinion on the federal tax consequences of the facts under any other provision of the Tax Code. Section 6110(k)(3) states that private letter rulings cannot be used or cited as precedent.