PLR 200029036: Fund receives more time to elect prior-year dividend treatment

Plain-English summary

An investment fund declared dividends that it intended to treat as paid in an earlier tax year under section 855(a). A tax department that normally handled its filings inadvertently missed the fund's return-extension request, jeopardizing a timely election. The IRS granted more time, through a redacted date, to make the election on the fund's return. The ruling addressed only timeliness and did not remove any late-return penalty, establish that the fund met section 855's substantive conditions, or decide whether it qualified as a regulated investment company.

Ruling snapshot

• Question: May the fund make a late section 855(a) election for dividends after its missed filing extension?
• Outcome: Approved through the date stated in the ruling.
• Key authorities: IRC § 855(a); Treas. Reg. §§ 1.855-1(b) and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                       Department of the Treasury

Index Number: 855.00-00                        Washington, DC 20224



Number: 200029036                              Person to Contact:
Release Date: 7/21/2000
                                               Telephone Number:

                                               Refer Reply To:
                                               CC:DOM:FI&P:2-PLR-104654-00
                                               Date:
                                               April 20, 2000



              TY:

Legend

Company 1 =
Fund =
Company 2 =
Firm =
State X =
Year 1 =
All =
Substantially All =
Date 1 =
Date 2 =
Date 3 =
Date 4 =
Date 5 =
Amount 1 =
Amount 2 =

Dear

       This responds to a ruling request submitted on February 29, 2000, on behalf of
Fund by Company 1, requesting an extension of time pursuant to section 301.9100-1(a)
of the Procedure and Administration Regulations for Fund to make an election under
section 855(a) of the Internal Revenue Code for Year 1.

       FACTS

       Company 1 is incorporated in State X. Fund is a portfolio of Company 1 that,
pursuant to section 851(g) , is required to be treated as a separate corporation. Fund is
a registered investment company operating under the Investment Company Act of
1940. Fund serves as an investment vehicle for variable annuity products offered by
Company 2. Fund provides holders of the variable annuity accounts with an investment
choice for amounts contributed to the contracts. For federal income tax purposes, Fund

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uses a fiscal year ending on Date 1.

       Company 2 provides tax return preparation assistance to Company 1 and Fund
and, for any transaction involving the payment of dividends by Company 1 and Fund, it
also computes and provides notice of any required distribution amounts. Company 1
and Fund then record and process the dividends based on the information provided by
Company 2. Fund declared Amount 1 of ordinary dividends and Amount 2 of capital
gains dividends on Date 2 and represents that it timely distributed these dividends with
the intent that they be covered by an election under section 855(a) and considered to
have been paid during Year 1.

        As of the close of Year 1, Company 1 consisted of All portfolios of which
Substantially All used a different taxable year from Fund’s taxable year. Under the
customary relationship between Company 1, Fund, and Company 2, Fund relied on
Company 2's tax department for advice on the filing of tax returns, including the
preparation of all returns and extension requests. In the past, Company 2 has prepared
and filed extension requests on behalf of Company 1 and Fund in a timely manner.

       By affidavit accompanying Fund’s ruling request, Company 2 affirms that it
should have filed an extension by Date 3 on behalf of Fund for Year 1. It asserts,
however, that due to (1) its tax department’s heavy involvement in tax reporting for
financial statement purposes for the consolidated group of companies belonging to
Company 2 and (2) the fact that Substantially All of Company 1's portfolios use a
different taxable year than Fund, an extension request for Fund was not filed on or
before Date 3. It further asserts that the failure to file for that extension was inadvertent
and that additional control procedures are being implemented to prevent similar errors
from occurring in the future.

      Company 2 states that it realized its oversight on Date 4. Company 2
immediately notified Company 1 and requested Firm to prepare a ruling request
seeking relief under sections 301.9100-1 and 301.9100-3 on behalf of Fund with
respect to its election under section 855(a) for Year 1. Absent such relief being
granted, Fund will not be considered to have made a timely election under section
855(a) with respect to Year 1.

       LAW AND ANALYSIS

        Section 855(a)(1) provides, in part, that if a regulated investment company
declares a dividend prior to the time prescribed by law (including extensions) for the
filing of its return for a taxable year and distributes that amount to its shareholders in
the 12 month period following the close of that taxable year (but, no later than the date
of the first regular dividend payment made after such declaration), the company may
elect in accordance with regulations established by the Secretary to have such amounts
considered (except as provided elsewhere in section 855) as having been paid during

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such taxable year.

         Section 1.855-1(b)(1) of the Income Tax Regulations provides that an election
under section 855(a) is made by a regulated investment company in the return filed for
the taxable year. Section 1.855-1(b)(2) provides that, after the expiration of the time
for filing the return for the taxable year for which an election is made, such election is
irrevocable.

       Section 7805(d) provides that, except as otherwise provided, any election under
the Code is required to be made at such time and in such manner as the Secretary
prescribes.

       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 section
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 Code except subtitles
E, G, H, and I.

        Section 301.9100-3(a) through (c)(1)(i) sets forth rules that the Internal Revenue
Service will use to determine whether, under the facts and circumstances of each
situation, the Commissioner will grant an extension for regulatory elections that do not
meet the requirements of section 301.9100-2. Section 301.9100-3(b) provides that,
subject to paragraphs (b)(3)(i) through (iii) of section 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 section 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 tax 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).

       CONCLUSION

       Based upon the facts and representations submitted, it is held that Fund has
shown good cause for granting a reasonable extension of time to allow it to make an
election under section 855(a) on its federal income tax return for Year 1. Accordingly,
the time for filing that election is extended to Date 5.

       This ruling is limited to the timeliness of Fund’s section 855(a) election as
reflected on its federal income tax return for Year 1. This ruling does not relieve Fund
from any penalty that it may owe as a result of its failure to file its federal income tax
return for Year 1 on time. This ruling’s application is limited to the facts, Code sections,

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and regulations cited herein. Except as specifically ruled upon above, no opinion is
expressed or implied as to any federal excise or income tax consequences regarding
Fund.

         In particular, no opinion is expressed as to whether Fund’s 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.

       Further, no opinion is expressed as to whether Fund, in fact, has satisfied the
requirements of section 855 and the regulations thereunder or whether Fund qualifies
as a regulated investment company under subchapter M, part I, .

       This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

         In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to your authorized representative.

      A copy of this letter must be attached to Fund’s original Form 1120-RIC for
Year 1 when filed.

                                                  Sincerely,
                                                  Assistant Chief Counsel
                                                  (Financial Institutions & Products)