Specified foreign corporations (“SPCs”) defined in 26 U.S.C. § 898(b) generally take on the same taxable year as the majority U.S. shareholder.[1] However, such corporations can elect to have a taxable year beginning one month earlier than the majority U.S. shareholder year.[2] This election is made on Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations), which must be filed with the income tax returns of the SPC’s U.S. shareholders.[3] If the SPC is unable to meet this deadline even though it acted reasonably and in good faith, it can receive an extension as long as doing so will not prejudice the interests of the government.[4]
In a series of Private Letter Rulings,[5] the IRS granted an extension when the taxpaying shareholder in question had a qualified tax professional prepare its filings who then neglected to timely file Form 5471. Thus, the late filing was “not due to any lack of due diligence or prompt action on the part of the taxpayer.” In light of the facts submitted by the taxpayer, the IRS concluded that the taxpayer acted reasonably and in good faith, and that granting the extension would not prejudice the interests of the government.
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[1] 26 USC § 898(c)(1).
[2] Id. at § 898(c)(2).
[3] I.R.S. Priv. Ltr. Rul. 202012009 (Mar. 20, 2020), 1-2.
[4] 26 C.F.R. § 301.9100-3.
[5] I.R.S. Priv. Ltr. Rul. 202012009 (Mar. 20, 2020), I.R.S. Priv. Ltr. Rul. 202012010 (Mar. 20, 2020), I.R.S. Priv. Ltr. Rul. 202012011 (Mar. 20, 2020).
