CCA 200952043: A mark-to-market election required both an election statement and Form 3115

Plain-English summary

Chief Counsel Advice addresses the documents securities traders needed to change to the mark-to-market accounting method under IRC section 475. The advice explains that a timely election statement, attached to the return for the year before the change, and a Form 3115 filed with the return for the year of change were both required. The taxpayers filed Form 3115 timely but did not file the required election statement, so the submission was incomplete. The advice notes that relief could be requested under Treas. Reg. § 301.9100-3 through a private letter ruling request, subject to a user fee and with no guarantee of relief.

Ruling snapshot

• Question: Could securities traders make a mark-to-market accounting method change without the required election statement?
• Outcome: Advice given
• Key authorities: IRC § 475; Treas. Reg. § 301.9100-3; Rev. Proc. 99-7; Rev. Proc. 2009-1

Full text (IRS public release)

ID: CCA_2009110416362722 Number: 200952043
Release Date: 12/24/2009
Office: -----------
UILC: 475.00-00, 9100.00-00

From: ---------------------
Sent: Wednesday, November 04, 2009 4:36:34 PM
To: --------------------------
Cc: ------------------------------------------------------------------------------------------ Subject: Counsel Assistance ----------------

-----------

I wanted to summarize what we just discussed regarding the rules for securities traders who want to make the mark-to-market accounting method change pursuant to section 475. Revenue Procedure 99-7 describes the specific procedures for making the mark-to-market accounting method change. But in a nutshell, two documents were required from your taxpayers -- an election statement and a Form 3115.

Election Statement

The election statement must be attached to a timely-filed return (or an extension of time to file) for the taxable year prior to the year of change. The statement must describe (1) the requested election, (2) the first taxable year for which the election is effective, and (3) the trade or business for which the election is made. In the case of your taxpayers, they were seeking to make the election effective for -------. So they should have filed an election statement by ----------, with their ------- tax return (or an extension of time to file). They did not file any election statement.

Form 3115

Form 3115 must be filed with the tax return for the year of change. In the case of your taxpayers, their Form 3115 was due by -----------when filing their ------- tax return in order to be effective for--------. While your taxpayers did submit Form 3115 timely, they did not submit an election statement. And an election statement is a required component.

You also asked whether relief might be available under Treas. Reg. 301.9100-3. While your taxpayers can request relief under that provision, they would need to submit a request for a private letter ruling and pay a user fee. The user fee schedule is in Rev. Proc. 2009-1 (generally $4,000, but there is a reduced user fee of $625 in certain circumstances). Note that the user fee schedule is republished each January and it is possible that the fees may be increasing. So if the taxpayers wish to pursue a private letter ruling, they need to be sure to include the appropriate user fee. Keep in mind, however, that there is no guarantee that the taxpayers will receive relief under Treas. Reg. 301.9100-3, as the requirements for accounting method regulatory elections are generally strictly construed.

In responding to your inquiry, I discussed with -------------------------in the ---------------------------------------------
------------- of the Office of Chief Counsel, as she had originally handled the taxpayers' case.

Please do not hesitate to call me with any additional questions.