PLR 1027002: Partnership granted relief for late fiscal-year election

Plain-English summary

The IRS granted a partnership an extension of time to file Form 8716 and elect a tax year ending September 30. The partnership had relied on a qualified tax professional, but its form was filed late and rejected. The IRS found that the partnership had acted reasonably and in good faith and that granting relief would not prejudice the government's interests. The partnership had 45 days to refile the form, attach the ruling, and comply with the applicable section 444 reporting and payment requirements.

Ruling snapshot

• Question: Could the partnership refile a late Form 8716 to elect a fiscal year ending September 30?
• Outcome: approved, subject to refiling within 45 days and complying with section 444 requirements
• Key authorities: IRC §§ 441, 444, 706, and 7519; Treas. Reg. §§ 1.441-1, 1.706-1, 1.444-3T, 1.7519-1T, and 301.9100-1 through 301.9100-3; IRC § 6110(k)(3)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201027002
Release Date: 7/9/2010
9100.09-00, 444.03-00

                                                     Person To Contact:

------------------------ ----------------, ID No. ------------
------------------------------------- CC:ITA:05
------------------------- Telephone Number:
-------------------------------- ---------------------
Refer Reply To:

     ------------------------                        PLR-104096-10
     ------------------------                        Date:
                                                     April 07, 2010

     LEGEND:

                A = ------------------------------------------------

                B = -----------------------------
           State = ------------

    Dates:
        1       =    --------------------------
        2       =    ------------------
        3       =    ---------------------------
        4       =    ---------------------------

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

      This responds to your letter and submissions of December 30, 2009, filed on

behalf of A, above (the “Taxpayer”), in which you requested a private letter ruling
relating to the late-filing of a Form 8716, Election To Have A Tax Year Other Than a
Required Tax Year. Specifically, you requested that the Taxpayer’s late-filed Form
8716 be considered timely filed under the authority contained in section 301.9100-3 of
the Procedure and Administration Regulations. We are pleased to address your
concerns.

FACTS

   The information submitted indicates that the Taxpayer was formed under the

laws of State on Date 1, is a partnership for federal income tax purposes, and uses an
overall cash receipts and disbursements method of accounting. The Taxpayer was
formed solely to hold a membership interest in B. All of the partners of the Taxpayer
are individuals that use the calendar year as their taxable year.
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LAW AND ANALYSIS

   Section 441(a) provides that taxable income is computed on the basis of the

taxpayer’s taxable year. Section 441(b) and section 1.441-1(b)(1) of the Income Tax
Regulations provide that the term “taxable year” generally means the taxpayer’s annual
accounting period, if it is a calendar or fiscal year, or, if applicable, the taxpayer’s
required taxable year. In the case of a partnership, the required taxable year is the
taxable year determined under section 706 and section 1.706-1. Section 1.441-
1(b)(2)(i)(G).

    Under section 706(b)(1)(B)(i), a partnership’s required taxable year is the

majority interest taxable year defined in section 706(b)(4), unless the taxpayer elects
under section 444 to use a taxable year other than its required taxable year. Section
706(b)(4) provides, in general, that the majority interest taxable year is the taxable year
(if any) which, on each testing day, constitutes the taxable year of 1 or more partners
having (on such day) an aggregate interest in partnership profits and capital of more
than 50 percent.

   Section 1.706-1(b)(7) provides, in relevant part, that a newly-formed partnership

may adopt, in accordance with section 1.441-1(c), its required taxable year or a taxable
year elected under section 444 without the consent of the Commissioner.

    Section 444(a) provides that, except as otherwise provided in section 444, a

partnership may elect to have a taxable year other than its required taxable year.
Section 444(b)(1) and (2) provide that an election under section 444(a) may be made
only if the deferral period of the taxable year elected is not longer than the shorter of
three (3) months or the deferral period of the taxable year being changed. The term
“deferral period” generally refers to the number of months between the beginning of the
entity’s taxable year and the close of the first required taxable year ending within such
taxable year. Section 444(b)(4).

    Section 1.444-3T(b) of the temporary Income Tax Regulations provides that a

section 444 election must be made on Form 8716. Section 1.444-3T(b)(1) 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 tax 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 sets forth rules respecting the granting of extensions of time

for making certain elections. Under these rules, the Commissioner in his 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.
 3

    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.

   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, for example, 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.

  In the instant case, the Taxpayer’s Form 8716 electing to use a taxable year

ending September 30 was due on or before Date 2. However, the Taxpayer, relying
upon the advice of a qualified tax professional, did not file the Form 8716 until on or
about Date 3, whereupon it was rejected by the Internal Revenue Service as untimely.

CONCLUSION

     Based on the information submitted and representations furnished by the

Taxpayer, we conclude that the Taxpayer acted reasonably and in good faith in respect
of this matter, and that the late filing was not due to any lack of due diligence or prompt
action on the part of the Taxpayer. We have further determined that the granting of
relief in this case will not prejudice the interests of the government within the meaning of
section 301.9100-3(c)(1). Accordingly, the requirements of section 301.9100-3 for the
granting of relief have been satisfied.

    Within 45 days of the date of this ruling, the Taxpayer should refile with the IRS

Cincinnati Service Center (Attn: Entity Control) a Form 8716 electing to use a tax year
ending September 30, effective for its first taxable year ending Date 4. A copy of this
letter ruling should accompany such submission, and the Taxpayer should type or print
at the top of the form: “Filed Under Section 301.9100-3 of the Regulations.”

   This ruling is further conditioned on the Taxpayer complying with section 1.7519-

1T(a)(2), which provides, in relevant part, that for each taxable year that a partnership
has an election under section 444 in effect, the partnership must (i) file a return as
provided in section 1.7519-2T(a)(2), and (ii) make any required payment as provided in
section 1.7519-2T.
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   Except for the specific ruling above, which is restricted to the filing of Form 8716,

we express or imply no opinion concerning the federal income tax consequences of the
facts of this case under any other provision of the Code or regulations that may be
applicable thereto. This letter ruling is based on facts and representations provided by
the Taxpayer and its authorized representatives, and is limited to the matters
specifically addressed. No opinion is expressed as to the tax treatment of the
transactions considered herein under the provisions of any other sections of the Code
or regulations which may be applicable thereto, or the tax treatment of any conditions
existing at the time of, or effects resulting from, such transactions which are not
specifically addressed herein.

  Because it could help resolve federal tax issues, a copy of this letter should be

maintained with the Taxpayers’ permanent records.

     Pursuant to a power of attorney currently on file with this office, copies of this

letter ruling are being sent to the Taxpayer’s authorized representatives. A copy of this
letter is also being sent to the Taxpayer’s appropriate Service Center campus.

    This ruling is directed only to the Taxpayers who requested it. Section 6110(k)(3)

of the Internal Revenue Code provides that it may not be used or cited as precedent.

                                          Associate Chief Counsel
                                          (Income Tax & Accounting)

                                          /s/ Jeffrey Rodrick

                                          Jeffrey Rodrick
                                          Senior Technician Reviewer,
                                              Branch 5
                                          Office of Associate Chief Counsel
                                          (Income Tax & Accounting)

Enclosures:
Copy of this letter
Copy for section 6110 purposes