PLR 200203066: Funds' dividend elections treated as timely despite unsigned extensions

Plain-English summary

Five investment funds intended to elect under section 855(a) for dividends declared before their return deadline. They mailed requests to extend their return filing deadlines, but the IRS rejected the forms because they were unsigned. The funds later filed returns making the elections and sought relief before the IRS found the missed deadline. The IRS extended the election deadline to the date those returns were filed and instructed the service center to treat the elections as timely. The ruling did not excuse any penalties for late returns or decide whether the funds qualified as regulated investment companies; tax liability effects remained subject to audit.

Ruling snapshot

• Question: Could the funds' section 855(a) elections be treated as timely after their unsigned extension requests were rejected?
• Outcome: Approved; the election deadline was extended to the date the returns were filed.
• 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

Number: 200203066 Washington, DC 20224
Release Date: 1/18/2002
Index Number: 9100.00-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:FIP:2-PLR-137942-01
Date:
October 23, 2001

TY:

Fund 1 =

Fund 2 =

Fund 3 =

Fund 4 =

Fund 5 =

Advisor =

Firm =

Year =

Date 1 =

Date 2 =

Date 3 =

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Date 4 =

Date 5 =

Date 6 =

Dear

This is in reply to a letter dated June 28, 2001, requesting an extension of time, under section 1.9100-3 of the Income Tax Regulations, for Funds 1 through 5 (“Funds”) to make the election under section 855(a) of the Internal Revenue Code and section 1.855-1(b)(1).

FACTS

Funds are corporations registered under the Investment Company Act of 1940, as amended, as open-end management investment companies. Funds have elected to be treated as regulated investment companies (“RICs”) in accordance with Subchapter M of the Code. Funds’ taxable year is the calendar year.

For Year, Funds declared dividends on Date 2, which was prior to Date 1, the due date without extensions for their federal income tax returns for Year. Funds intended to elect under section 855(a) of the Code and section 1.855-1(b)(1) of the regulations with respect to the dividends paid.

On Date 3, Funds mailed Forms 7004, requests for automatic extensions of time to file their federal income tax returns. Through inadvertence, none of the requests had been signed. The return receipts for the mailings show that they were received in the IRS service center on Date 4, which was prior to Date 1, the due date for the Funds’ income tax returns.

On Date 4, Firm informed Advisor that the Forms 7004 for Funds had been rejected by the IRS because they had not been signed. Firm provides administrative services for Funds, and Advisor is composed of tax professionals and had prepared the Forms 7004 on behalf of Funds. By Date 5 Funds had filed federal income tax returns making the section 855(a) election, and by Date 6 had filed a request for a letter ruling under section 1.9100 of the regulations.

Funds make the following representations:

1. The request for relief was filed by the Funds before the failure to make the regulatory election was discovered by the Service.

2. Granting the relief will not result in the Funds having a lower tax liability in the aggregate for all years to which the regulatory election applies than the Funds would have had if the election had been timely made (taking into account the

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time value of money).

3. The Funds do not seek to alter a return position for which an accuracy-related penalty has been or could have been imposed under section 6662 of the Code at the time the Funds requested relief and the new position requires or permits a regulatory election for which relief is requested.

4. Being fully informed of the required regulatory election and related tax consequences, the Funds did not choose to not file the election.

APPLICABLE LAW

Section 301.9100-1(c) of the regulations 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 deadline 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.

Section 301.9100-3(a) through (c)(1)(i) of the regulations sets 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 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 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 the Funds have shown good cause for granting reasonable extensions of time to allow them to make elections under § 855(a) of the Code. Accordingly, the time for filing the elections is extended to Date 5.

No opinion is expressed as to whether the Funds’ tax liability is not lower in the aggregate for all years to which the regulatory election applies than their 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 director's office will determine the taxpayers’ tax liability for the years involved. If the director's office determines the taxpayers’ liability is lower, that office will determine the federal

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income tax effect.

This ruling is limited to the timeliness of Funds’ elections. This ruling does not relieve Funds from any penalties they may owe as a result of the failure to file federal income tax returns on time. This ruling's application is limited to the facts, Code sections, and regulations cited herein. No opinion is expressed as to whether Funds qualify as RICs under subchapter M, part I, of the Code.

A copy of this letter is being forwarded to the service center where Funds file their returns with instructions that although their returns were not timely filed, Funds are to be treated as having made timely section 855 elections.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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

In accordance with the terms of a power of attorney on file in this office, copies of this letter are being sent to the taxpayer and the second-named representative on the power of attorney.

Sincerely yours,
William E. Coppersmith
Chief, Branch 2
Office of Associate
Chief Counsel
(Financial Institutions & Products)