PLR 200005011: Fund receives more time for dividend election

Plain-English summary

A regulated investment fund intended to elect under section 855(a) to treat certain dividends paid after year end as paid during the earlier tax year. Its service provider paid the tax due but mistakenly failed to file Form 7004, leaving the fund without a return filing extension. The fund later filed its return with the election and asked for extra time to make it. The IRS granted an extension through the return filing date identified in the ruling. The letter did not excuse a late return or determine whether the fund otherwise satisfied section 855 or qualified as a regulated investment company.

Ruling snapshot

• Question: Could the fund make its section 855(a) election despite missing the ordinary deadline?
• Outcome: An extension to the specified filing date was granted
• Key authorities: IRC § 855(a); Treas. Reg. §§ 1.855-1(b)(1), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 855.00-00, 9100.00-00 Washington, DC 20224

Number: 200005011
Person to Contact:
Release Date: 2/4/2000
Telephone Number:

Refer Reply To:
CC:DOM:FI&P:1 - PLR-114780-99
Date:
November 04, 1999

LEGEND

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Dear

This is in reply to a letter dated August 31, 1999, and subsequent correspondence, requesting a ruling on behalf of Fund. You have requested a ruling that Fund be granted an extension of time under § 301.9100 of the Procedure and Administration Regulations to make an election under § 855 of the Internal Revenue Code for Fund’s tax year ended Date 1.

FACTS

Fund is registered under the Investment Company Act of 1940, 15 U.S.C.
§ 80a-1, et seq., as amended, as an open-end investment company. Fund elected on its initial federal income tax return to be taxed as a regulated investment company (RIC) under subchapter M, part I of Chapter 1 of the Internal Revenue Code. Fund has maintained its election and qualification as a RIC in each tax year thereafter. Fund files its federal income tax return on the basis of a fiscal year ending Date 1.

Company has been responsible for the preparation and review of Fund’s tax returns and extensions since Fund’s inception in Year 1. On Date 2, an employee of Company prepared for Fund a Form 7004, Application for Automatic Extension of Time to File a Corporation Income Tax Return, for the fiscal year ending Date 1. The Treasurer for Fund signed and dated the Form 7004 on Date 3, and sent the Form 7004 back to Company approximately one week later. Company’s accounting department then determined the tax due and submitted the extension request to Company’s fund tax department.

An assistant in Company’s tax department remitted a payment of the tax due to the Internal Revenue Service via an authorized banking institution. After returning from the bank, the assistant erroneously noted on Company’s tickler system that the time for filing Fund’s Form 1120-RIC had been extended for its fiscal year ending Date 1 by payment of the tax due on Date 4. The assistant was not aware that payment of the tax liability did not create a valid extension of time to file the Form 1120-RIC without the timely filing of the Form 7004 as well.

On Date 5, the Fund tax specialist at Company discovered that Fund’s file contained the original, signed Form 7004 and realized that Fund had not obtained an extension of time to file.

Fund paid Dollar 1 of tax-exempt interest dividends on Date 6, and Dollar 2 of long term capital gains dividends on Date 7. Fund intended to elect under § 855(a) to treat Dollar 3 of tax-exempt interest dividends and Dollar 4 of long term capital gains dividends paid after the close of Fund’s tax year as having been paid during the tax year, consistent with Fund’s prior practice, as evidenced by prior years’ tax returns. On Date 8, Fund filed its tax return for its fiscal year ending Date 1, which included an 3

election under § 855.

LAW AND ANALYSIS

Section 855(a) provides, in part, that if a RIC declares a dividend prior to the time prescribed by law for the filing of its return for a tax year (including the period of any extension of time granted for filing such return), and distributes the amount of the dividend to shareholders in the 12-month period following the close of such tax year and not later than the date of the first regular dividend payment made after the declaration, the amount so declared and distributed shall, to the extent the company elects in such return in accordance with regulations prescribed by the Secretary, be considered as having been paid during such tax year, except as provided elsewhere in the section.

Section 1.855-1(b)(1) of the Income Tax Regulations provides that a § 855 election must be made in the return filed by the company for the tax year. The election should be made by the taxpayer by treating the dividend (or portion thereof) to which such election applies as a dividend paid during the tax year in computing its investment company taxable income, or if the dividend (or portion thereof) to which such election applies is to be designated by the company as a capital gain dividend, in computing the amount of capital gain dividends paid during such tax year. After the time for filing the return for the tax year for which an election is made under § 855(a), the election is irrevocable.

Section 301.9100-1(c) provides, in part, that the Commissioner has discretion to grant a reasonable extension of time to make a regulatory election (defined in § 301.9100-1(b) as an election whose due date is prescribed by regulations or by a revenue ruling, a revenue procedure, a notice, or an announcement published in the Internal Revenue Bulletin), 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.

Sections 301.9100-3(a) through (c)(1)(i) set forth rules that the Internal Revenue Service generally will use to determine whether, under the facts and circumstances of each situation, the Commissioner will grant an extension of time for regulatory elections that do not meet the requirements of § 301.9100-2. Section 301.9100-3(b) provides that subject to paragraphs (b)(3)(i) through (iii) of § 301.9100-3, when a taxpayer applies for relief under this section before the failure to make the regulatory election is discovered by the Service, the taxpayer will be deemed to have acted reasonably and in good faith; and § 301.9100-3(c) provides that the interests of the government are prejudiced if granting relief would result in the taxpayer having a lower tax liability in the aggregate for all years to which the regulatory election applies than the taxpayer would have had if the election had been timely made (taking into account the time value of money).
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CONCLUSION

Based on the facts and representations submitted, we conclude that Fund has satisfied the requirements for our granting a reasonable extension of time to allow it to make the election under § 855(a). Accordingly, Fund is granted an extension until Date 8 to make an election under § 855(a) on its federal income tax return filed for its tax year ended Date 1.

Except as specifically ruled upon herein, we express no opinion concerning any federal excise or income tax consequences relating to the facts herein under any other section of the Code. For example, we express no opinion as to whether Fund, in fact, has satisfied the requirements of § 855 and the regulations thereunder. We also express no opinion as to whether Fund qualifies as a RIC under subchapter M, part I of Chapter 1 of the Code.

Further, no opinion is expressed as to whether Fund’s tax liability is not lower in the aggregate for all years to which the regulatory election applies than Fund’s tax liability would have been if the election had been timely made (taking into account the time value of money). Upon audit of the federal income tax returns involved, the district director's office will determine Fund’s tax liability for the years involved. If the district director's office determines Fund’s liability is lower, that office will determine the federal income tax effect.

This ruling is limited to providing an extension of time for filing a § 855(a) election and does not provide relief from any liability incurred as a result of filing a late return.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.
Sincerely yours,
Lon B. Smith
Assistant Chief Counsel
(Financial Institutions & Products)
Enclosures:
Copy of this letter
Section 6110 Copy