PLR 200409016: Couple may make late election to combine rental properties

Plain-English summary

A married couple filed a joint return without electing to treat all their rental real estate interests as one activity. They had relied on a tax preparer who did not advise them about the election. The IRS found that they met the standards for late-election relief and gave them 60 days to attach the required statement to an amended return for the earlier year. The ruling does not decide whether they qualify as real estate professionals or materially participated in any activity.

Ruling snapshot

• Question: May the couple make a late election to group rental real estate interests?
• Outcome: Approved: a 60-day extension was granted for an amended return.
• Key authorities: IRC § 469(c)(7)(A); Treas. Reg. §§ 1.469-9(g)(3), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200409016
Release Date: 2/27/04
Index Number: 469.03-03; 9100.00-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B03 – PLR-106351-03
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Date:
November 17, 2003

Legend

X = --------------------
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Y = ----------------------
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Year 1 = -------

Dear -------------------------:

This letter responds to a letter dated December 20, 2002, requesting a ruling that X and Y be granted an extension of time under ' 301.9100-3 of the Procedure and Administration Regulations to file an election under ' 469(c)(7)(A) of the Internal Revenue Code and ' 1.469-9(g)(3) of the Income Tax Regulations to treat all interests in rental real estate as a single rental real estate activity.

Facts

According to the information submitted, X and Y are married individuals who filed their tax returns jointly. X represents that in Year 1 he was in a real property business as defined by §469 and was qualified under ' 469(c)(7)(B) to make an election to treat all interests in rental real estate as a single rental real estate activity. However, X and Y, having relied on a professional tax return preparer who failed to advise them of the availability and benefits of an election under ' 469(c)(7), filed their joint return for Year 1 without the statement required under ' 1.469-9(g)(3). 2

Law and Analysis

Under ' 469(c)(2), the term "passive activity" generally includes any rental activity. Section 469(c)(7) provides a limited exception to this rule for taxpayers in a real property business. Specifically, ' 469(c)(7)(A) provides that if a taxpayer meets the requirements of ' 469(c)(7)(B), the taxpayer's rental real estate activity will no longer be presumptively passive. By its terms, the exception under ' 469(c)(7)(A) is to be applied as if each interest of the taxpayer in rental real estate were a separate activity. However, a taxpayer may elect to treat all interests in rental real estate as a single activity.

Section 1.469-9(g)(3) provides that a qualifying taxpayer makes the election to treat all interests in rental real estate as a single rental real estate activity by filing a statement with the taxpayer's original income tax return for the taxable year. Section 1.469-9(g)(3) describes the information that must be contained in the statement.

Under ' 301.9100-1(c), the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than six 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 301.9100-1(b) defines the term "regulatory election" as including an election whose deadline is prescribed by a regulation published in the Internal Revenue Bulletin.

Sections 301.9100-1 through 301.9100-3 provide the standards that the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-1(a).

Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of ' 301.9100-2.

Section 301.9100-3(a) provides that requests for relief under ' 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the government.

Conclusion

Based solely on the facts submitted and the representations made, we conclude that the requirements of ' 301.9100-3 have been satisfied. As a result, X and Y are granted an extension of time of sixty (60) days from the date of this letter to make an election under ' 469(c)(7)(A) to treat all their interests in rental real estate as a single rental real estate activity effective Year 1. The election must be in the form of the 3

statement required by ' 1.469-9(g)(3) and attached to an amended return for Year 1. A copy of this letter should be attached to the election.

Except as specifically provided herein, no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X and Y satisfy the requirements under ' 469(c)(7)(B) or whether X and Y materially participate in any activity.

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

Pursuant to the power of attorney on file with this office, a copy of the letter is being sent to your authorized representative.

Sincerely,

/s/
Heather C. Maloy
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2):
Copy of this letter
Copy for ' 6110 purposes
Cc: