PLR 200233009: Late election for a September tax year accepted

Plain-English summary

A personal service corporation intended to elect a September 30 tax year but did not file Form 8716 by the deadline. It had hired a qualified tax professional, and the missed filing resulted from an error or misunderstanding rather than a lack of diligence by the corporation. The IRS found that the corporation acted reasonably and in good faith and that relief would not prejudice the government. It instructed the service center to treat the filed Form 8716 as timely. The ruling also reminds the corporation that a section 444 election brings minimum distribution requirements under IRC § 280H.

Ruling snapshot

• Question: Can the corporation's late Form 8716 election for a September 30 tax year be treated as timely?
• Outcome: Approved; the service center was instructed to process the form as timely filed
• Key authorities: IRC §§ 444 and 280H; Treas. Reg. §§ 301.9100-2 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200233009
Washington, DC 20224
Release Date: 8/16/2002
Index Nos.: 9100.09-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:ITA:4 PLR-113756-02
Date:
April 29, 2002
TIN:

Dear :

This is in response to a request filed on behalf of the above-named taxpayer regarding the late filing of a Form 8716, Election To Have a Tax Year Other Than a Required Tax Year. The taxpayer has requested that its late-filed Form 8716 be considered timely filed under authority contained in section 301.9100-3 of the Procedure and Administration Regulations.

The information submitted indicates that the taxpayer is a personnel service corporation.

Taxpayer’s Form 8716 electing to use a taxable year ending September 30 was not filed by the due date. However, the information furnished shows that the taxpayer intended to file Form 8716 on a timely basis, and engaged a qualified tax professional in order to assure a proper filing. Due to an error or misunderstanding, however, the Form was not timely filed. Submitted information indicates that the error was not due to any lack of due diligence or prompt action on the part of the taxpayer.

Section 1.444-3T(b)(1) of the temporary Income Tax Regulations provides, among other requirements, that Form 8716 must be filed by the earlier of (i) the 15th day of the fifth month following the month that includes the first day of the taxable year for which the election will first be effective, or (ii) the due date (without regard to extensions) of the income tax return resulting from the section 444 election.

Section 301.9100-1 of the Procedure and Administration Regulations set forth rules respecting the granting of extensions of time for making certain elections. Under these rules, the Commissioner in his or her discretion may grant a reasonable extension of time to make a regulatory election under Subtitle A, provided the taxpayer acted reasonably and in good faith, and that the granting of relief will not prejudice the interests of the government.

Section 301.9100-2 sets forth rules governing automatic extensions for regulatory elections, including elections to use other than the required tax year under section 444. If the provisions of section 301.9100-2 do not apply to the taxpayer’s situation, as in the instant case, the provisions of section 301.9100-3 (Other extensions) may apply.
2
PLR-113756-02

Section 301.9100-3 sets forth standards that the Commissioner will employ in determining whether to grant discretionary relief in situations that do not meet the requirements of section 301.9100-2. The standards applied are whether the taxpayer acted reasonably and in good faith in the matter, and whether the granting of relief will prejudice the interests of the government. Generally, a taxpayer will be deemed to have acted reasonably and in good faith where the taxpayer reasonably relied on a qualified tax professional, and that professional failed to make, or advise the taxpayer to make, the election at issue.

The information submitted and representations furnished by the taxpayer and its tax professionals establish that the taxpayer acted reasonably and in good faith in respect of this matter. Furthermore, we have determined that the granting of relief in this case will not prejudice the interests of the government within the intendment of section 301.9100-3(c)(1). Accordingly, the requirements of section 301.9100-3 of the regulations for the granting of relief have been satisfied.

A copy of this letter and taxpayer’s Form 8716 filed in connection with this ruling request are being forwarded to the service center where the taxpayer files its returns of tax, with instructions that the form be considered timely filed and processed.

An electing personal service corporation must comply with the minimum distribution requirements of section 280H for each year a section 444 election is in effect. If the personal service corporation does not meet these requirements, the applicable amounts it may deduct for payments made to employee-owners may be limited.

This ruling is limited to the filing of Form 8716. Except to the extent specifically addressed herein, no opinion is expressed regarding the tax treatment of the subject transaction under the provisions of any other sections of the Code or regulations that may be applicable thereto.

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

Sincerely yours,
Michael J. Montemurro
Senior Technician Reviewer
Office of Associate Chief Counsel
(Income Tax & Accounting)

Enclosures:
Copy of this letter
Copy for § 6110 purposes cc: