PLR 200606017: Late rental real estate grouping election permitted

Plain-English summary

A taxpayer in a real property business said a tax preparer had failed to advise about the election to treat all rental real estate interests as one activity for the passive loss rules. The taxpayer filed the original return without the required election statement. The IRS granted 60 days to make the election effective for the redacted tax year under Treasury Regulation section 301.9100-3. The taxpayer had to attach the election statement and ruling to an amended return. The IRS did not decide whether the taxpayer met the real property business or material participation requirements.

Ruling snapshot

• Question: Could the taxpayer make the rental real estate grouping election after filing the original return?
• Outcome: Approved a 60 day extension for the election statement.
• Key authorities: IRC § 469(c)(7); 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: 200606017
Release Date: 2/10/2006
Index Number: 9100.00-00, 469.03-03

• Person To Contact:
  ------------------------ ------------------------------- ---------------------
  ------------------------------------- -----------------------------------------------------
  ------------------------------------ Telephone Number:
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  Refer Reply To:
  CC:PSI:2 – PLR-131879-05
  Date:
  October 21, 2005

LEGEND

A = --------------------------------
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Year 1 = -------

Dear -----------------

This responds to a letter dated June 10, 2005, submitted on behalf of A by an authorized representative requesting a ruling that A be granted an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election under § 469(c)(7) 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.

A represents that in Year 1 A 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, A, having relied on a professional tax return preparer who failed to advise A of the availability and benefits of an election under § 469(c)(7), filed A’s income tax return for Year 1 without the statement required under § 1.469-9(g)(3).

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) indicates that if a taxpayer meets the requirements of section 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

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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 301.9100-2 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.

Section 301.9100-3(b) provides that subject to paragraphs (b)(3)(i) through (iii) of § 301.9100-3, when a taxpayer reasonably relied on a qualified tax professional, including a tax professional employed by the taxpayer, and the tax professional failed to make, or advise the taxpayer to make the election, the taxpayer will be deemed to have acted reasonably and in good faith.

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, A is 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 A’s interests in rental real estate as a single rental real estate activity effective Year 1. The election must be in the form of the 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 A satisfy the requirements under § 469(c)(7)(B) or whether A materially participate in any

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activity.

This ruling is directed only to the taxpayer 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 this letter is being sent to your authorized representatives.

Sincerely,

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

Enclosures (2)
Copy of this letter
Copy for § 6110