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Making an Entity Election When the IRS is Closed

Posted on Apr. 23, 2020

Today we welcome guest blogger Kelley Miller. Kelley is a partner with Reed Smith in Washington, D.C. I know her through her amazing leadership in assisting exonerees with tax problems and with filing refund claims after the passage of IRC 139F. We have previously posted about her work here and here. In January the ABA Tax Section honored Kelley with the Janet Spragens Pro Bono award for her work in this area. Although I know her for her pro bono work and her leadership in the ABA Tax Section, she has a day job handling tax controversy and business tax matters. While we have focused quite a bit on the impact of the IRS shut down and the general economic slow-down on individuals, it has also had a significant impact on business. Kelley writes today about one aspect of the impact on business as businesses seek to follow the procedures for entity election. Keith

An entity uses a Form 8832 to elect how it will be classified for federal tax purposes: as a corporation, a partnership, or an entity disregarded as separate from its owner. An eligible entity is classified for federal tax purposes under the default rules described below unless it files Form 8832.

WHEN MUST THE FORM 8832 BE FILED?

Generally, an election specifying an eligible entity’s classification cannot take effect more than 75 days prior to the date the election is filed, nor can it take effect later than 12 months after the date the election is filed.

An eligible entity may be eligible for late election relief in certain circumstances.

WHERE AND IN WHAT MANNER MUST THE FORM 8832 BE FILED?

A Form 8832 is paper-filed with the Internal Revenue Service Center based on the state or jurisdiction where the entity’s principal business, office, or agency is located.

In addition to timely paper filing, the entity must attach a copy of Form 8832 to its federal tax or information return for the tax year of the election. If the entity is not required to file a return for that year, a copy of its Form 8832 must be attached to the federal tax returns of all direct or indirect owners of the entity for the tax year of the owner that includes the date on which the election took effect. An indirect owner of the electing entity does not have to attach a copy of the Form 8832 to its tax return if an entity in which it has an interest is already filing a copy of the Form 8832 with its return. Failure to attach a copy of Form 8832 will not invalidate an otherwise valid election, but penalties may be assessed against persons who are required to, but do not, attach Form 8832.

FORM 8832 – COVID-19 RELATED QUESTIONS

HAS THE IRS RELEASED ANY GUIDANCE RELATED TO THE TIMELY FILING OF FORM 8832?

Yes. Notice 2020-23 (“Notice”), which was released on April 9, 2020, provides that, pursuant to Section 7508A of the Internal Revenue Code, the Secretary of the Treasury may postpone the time for performing certain acts under the internal revenue laws for a taxpayer determined by the Secretary to be affected by a Federally declared disaster as defined in section 165(i)(5) (A). Further, under Section 7508A(a), a period of up to one year may be disregarded in determining whether the performance of certain acts is timely under the internal revenue laws.

The relief provided under section 7508A in Notice 2020-23, as well as related Notices that predated this Notice (specifically, Notice 2020-18 and Notice 2020-20) is limited to the relief explicitly provided for and does not apply with respect to any other type of Federal tax, any other type of Federal tax return, or any other time-sensitive act.

The specific relief provided under Notice 2020-23 is that any person (which includes partnerships, companies and corporations under Section 7701(a)(1)) with a Federal tax return or other form filing obligation specified in section III.A of the Notice (Specified Form), which is due to be performed (originally or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020, is affected by the COVID-19 emergency for purposes of the relief described in section III of the Notice (Affected Taxpayer).

Note, however, that Notice 2020-23 does not include Form 8832 in the section III.A list of Specified Forms. Therefore, the COVID-19 guidance related to timely filing of Form 8832 falls under that applicable to Affected Taxpayers. 

DOES “AFFECTED TAXPAYER” INCLUDE AN ENTITY WITH A FORM 8832 FILING REQUIREMENT?

Yes, if the Form 8832 would be timely if filed on or after April 1, 2020 and before July 15, 2020.

Specifically, Notice 2020-23 provides that any person performing a time-sensitive action listed in Rev. Proc. 2018-58, 2018-50 IRB 990 (December 10, 2018), which is due to be performed on or after April 1, 2020, and before July 15, 2020 (Specified Time-Sensitive Action), is an Affected Taxpayer.

Rev. Proc. 2018-58 lists 35 acts under certain statutes related to business and individual tax issues that may be postponed pursuant to Section 7508A when there has been a federally declared disaster. Act No. 33 of this listing of 35 acts is an election under Treas. Reg. Sec. 301.7701- 3(c), which provides for the time and place for filing of a classification election for federal tax purposes. 

CAN A FORM 8832 BE SIGNED BY PDF SIGNATURE?

No, not at this time. There is no guidance in either the Treasury Regulations, the IRM or in the

Instructions to Form 8832 (see, Page 6) as to the requirement for original signatures on Form 8832, however, last year the IRS began sending letters to filers requesting original signatures on Form 8832 in order to process the filed Forms. 

In Internal Memorandum NHQ-01-0320-0001 (“Memorandum”) (March 27, 2020), the IRS

Deputy Commissioner for Services and Enforcement announced that pursuant to IRM 1.11.2.2.4, the IRS would accept images of signatures and digital signatures on certain documents related to the determination or collection of tax liability. Form 8832 was not included among the documents specifically referenced in the Memorandum. Further, although this Memorandum did provide that “any other statement or form needing the signature of a taxpayer or representative traditionally collected by IRS personnel outside of standard filing procedures” could be signed electronically, this likely does not apply to Form 8832 since the Form is not traditionally collected by IRS personnel outside of the standard filing procedure. 

CAN A FORM 8832 BE FAX-FILED DUE TO COVID-19?

No, not at this time. In addition to providing guidance for images of signatures and digital signatures, Internal Memorandum NHQ-01-0320-0001 allows for documents specifically referenced in the Memorandum to be provided electronically to the IRS via email. Form 8832, however, requires original signatures and is not included in those documents referred to in the Memorandum. At this time, the IRS has only announced that specific tax forms (Form 1139, Corporation Application for Tentative Refund and Form 1045, Application for Tentative Refund) may be temporarily fax-filed. 

WHAT SHOULD BE DONE IF CLIENT WANTS TO FILE A FORM 8832 BUT CANNOT GET AN EIN?

As of April 15, 2020, EIN applications are not being processed by mail, telephone or fax. The IRS locations that receive and process mail applications are closed at this time, and the IRS has turned off the fax lines that receive SS-4 forms. Mail may be received in the Cincinnati Service Center, but we also have received returned mail sent to that Service Center late last month. If mail is received (and not returned) there may be significant delay in processing the same. The only available option to receive an EIN is limited to those entities with a principal place of business, or principal office or agency in any U.S. state. These applicants may use the IRS online EIN application system. Due to overwhelming demand, this system has been offline sporadically over the past week. 

Notice 2020-23 and the guidance related to the same provides entities an extension of time to file Form 8832. Therefore, absent other compelling reasons, clients should take advantage of the additional time afford under the Notice. 

If a client is concerned about relying on the guidance in Notice 2020-23, an overly conservative approach might be to file a protective Form 8832 that omits the EIN. Note that Forms 8832 for foreign entities are paper filed to the Service Center in Ogden, which is the only Service Center staffed at this time (50% capacity and not processing mail, according to several ROs that I have spoken with). Accordingly, there is a fair chance that such a Form could be received and processed, however, even if the Form is received and processed, it will certainly be rejected for failure to include an EIN. At the least, the entity could point to something being filed as reasonable cause basis under Rev. Proc. 2009-41. Again, taking this action should not be necessary under the guidance of Notice 2020-23. 

WHEN IS THE IRS GOING TO RESUME ASSIGNING EINS BY PHONE AND FAX?

The IRS Deputy Commissioner for Services and Enforcement as well as the National Taxpayer Advocate are well aware of the issue. 

In order to cure the temporary shutdown of the mail and fax processing systems, as well as the telephone operators, the IRS will either need to bring employees back to work in the Service Center or it will have to arrange for EIN applications or calls to be handled by employees who are eligible for telework. Unfortunately, the only IRS employees who are eligible for telework are not those who currently receive and process the EIN applications. While this may change in the near future, for now, the IRS is relying on the extension of time provided for in Notice

2020-23. 

IS THERE ANYTHING ELSE THAT I CAN DO TO ASSIST A FOREIGN ENTITY OBTAIN AN EIN?

Telephone calls from foreign entities requesting an EIN are only worked by Cincinnati and

Ogden International Units and, as stated above, those individuals are currently not teleworking (and the Ogden Service Center is working at partial capacity). 

There could be an effort made to bring some of these persons back online through telework or in-person staffing as time goes on. Therefore, the best advice at this time is to stay aware of news and updates from the IRS and also, to periodically attempt calling or submitting the SS-4 via fax. 

As a reminder, the relevant phone and fax numbers for a foreign entity to request an EIN are:

  • EIN International phone number (267) 941-1099 (not a toll-free number)
  • Hours of operation 6:00 a.m. to 11:00 p.m. Eastern time Monday through Friday
  • EIN International fax number (855) 215-1627 if faxing from within the U.S. and
  • EIN International fax number (304) 707-9471 if faxing from outside the U.S.
[As an aside, I had trouble weeks ago filing a Form 2848 to the International CAF Unit in Philadelphia, which is also closed. On a lark, I faxed to the CAF unit in Ogden and my submission was accepted. This is slightly different as the recording of the declaration of representative is more time-sensitive in an active matter, but if all else fails, and you want to take the most aggressive course of action, you might want to try faxing an SS-4 to the domestic fax number, provided that it is turned back on at some point, which is: Fax: (855) 641-6935.]
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