PLR 200852030: Late election relief for a trust that missed the 65-day rule filing

Plain-English summary

Section 663(b) gives trusts and estates a useful bit of flexibility. If the fiduciary pays or credits an amount to a beneficiary within the first 65 days of a tax year, the fiduciary can elect to treat it as if it had been paid on the last day of the year before. That moves the distribution deduction, and the beneficiary's income, back one year. The election is what makes it work, and it has to be made by the time the return would be due.

This trust did the distributing but not the electing. It paid one amount to the first beneficiary and another to the second within the first 65 days of the second year. The trustee then failed to file an effective section 663(b) election for the taxable year. Under section 1.663(b)-2(a)(2), where no return is required for the year, the election is made by filing a statement with the office where the trust would have filed, no later than the filing deadline including extensions, and it is irrevocable after that date passes.

That deadline sits in a regulation, which is what made relief available. Section 301.9100-1(b) defines a regulatory election as one whose due date is set by regulation rather than by statute, and section 301.9100-3 lets the Commissioner extend the time to make one. The standard is not automatic: the taxpayer has to establish that it acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government.

Based solely on the information submitted and the representations made, the Service concluded both requirements were met. The trust gets 60 days from the date of the letter to make the section 663(b) election by filing a statement with the appropriate service center, with a copy of the ruling letter attached. Nothing else about the federal tax consequences of these distributions is ruled on.

This document is a clean digital release rather than a scan, so the text below required no OCR correction. The redaction dashes are the IRS's own, marking the taxpayer details removed before release under section 6110.

Ruling snapshot

• Question: May a trust that made distributions within the first 65 days of a year, but never filed the election to relate them back, get an extension of time to make that election?
• Outcome: approved. The trust has 60 days from the date of the letter to make the section 663(b) election by filing a statement with the appropriate service center.
• Key authorities: Code section 663(b); Treas. Reg. sections 1.663(b)-2(a)(2), 301.9100-1(b), 301.9100-1(c), 301.9100-2, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 200852030
Release Date: 12/26/2008
Index Number: 663.04-00, 9100.15-00

------------------------------------------------------------ Person To Contact:
--------------------------------------- --------------------ID No. -------------
------------ Telephone Number:

-------------------------- Refer Reply To:
----------------------------------------- CC:PSI:2
PLR-150210-07
Date:
August 01, 2008

Trust = -------------------------------------------------------------------

Beneficiary 1= -------------------------------------------------
-----------------------------------------------------
Beneficiary 2= ------------------------------------------------------
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$x= ------------------

$y= ------------------

Year 1= -------

Year 2= --------

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

This responds to a letter dated September 24, 2007, and subsequent correspondence submitted on behalf of Trust, requesting that Trust be granted an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to make an election under § 663(b) of the Internal Revenue Code.

The information submitted states that Trust made a distribution in the amount of
$x to Beneficiary 1 and $y to Beneficiary 2 (Distributions) within the first 65 days of Year

2. However, the trustee did not file an effective § 663(b) election for the taxable year.
   2
   PLR-150210-07

Section 663(b) provides that if within the first 65 days of any taxable year of an estate or trust, an amount is properly paid or credited, such amount shall be considered paid or credited on the last day of the preceding taxable year, provided that the executor of the estate or the fiduciary of the trust so elects in such manner and at such time as the Secretary prescribes by regulations.

Section 1.663(b)-2(a)(2) of the Income Tax Regulations provides that if a return is not required to be filed for a trust’s taxable year for which a § 663(b) election is to be made, the election is made in a statement filed with the internal revenue office with which a return by such trust would be filed if such trust were required to file a return for such taxable year. The election is made not later than the time prescribed by law for filing a return (including extensions thereof) if such trust were required to file a return for such taxable year. The election is irrevocable after the last day prescribed for making it.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time to make a regulatory election, 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 301.9100-1(b) defines the term “regulatory election” as an election whose due date is prescribed by a regulation published in the Federal Register or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government.

Based solely on the information submitted and the representations made, we conclude that the requirements of § 301.9100-1 and § 301.9100-3 have been satisfied. As a result, Trust is granted an extension of time of 60 days from the date of this letter to make an election under § 663(b), by filing a statement with the appropriate service center, with a copy of this letter attached. A copy is enclosed for that purpose.

Except as specifically set forth above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the Code.

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. 3 PLR-150210-07

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

Sincerely,

William P. O'Shea
Associate Chief Counsel
Passthroughs & Special Industries

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