PLR 1027018: IRS granted a late election to treat rental real estate as one activity

Plain-English summary

The IRS granted married taxpayers 60 days to make a late election to treat all of their interests in rental real estate as one rental real estate activity. The taxpayers said they were in a real property business and qualified for the election, but their joint return did not include the required statement. The IRS found that the standards for discretionary relief were met, including the rule addressing reasonable reliance on a qualified tax professional. The taxpayers had to attach the statement to an amended return, and the extension could not run beyond the authorized period for filing that amended return. The ruling did not decide whether they met the underlying qualification or material-participation requirements.

Ruling snapshot

• Question: Could the taxpayers make a late election to treat all interests in rental real estate as one activity?
• Outcome: approved
• Key authorities: IRC § 469; Treas. Reg. §§ 1.469-9(g)(3) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201027018 Third Party Communication: None
Release Date: 7/9/2010 Date of Communication: Not Applicable
Index Number: 9100.00-00, 469.03-03
Person To Contact:
---------------------------- --------------------, ID No. -------------
-------------------------- Telephone Number:
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-------------------------------------- Refer Reply To:
CC:PSI:B2
PLR-143095-09
Date:
February 24, 2010

Legend

Taxpayers = -----------------------------------------------------------------------------------------------
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Year = -------

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

   This responds to a letter dated September 21, 2009 and subsequent

correspondence, submitted by your authorized representative on your behalf,
requesting a ruling that you 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.

Facts

    According to the information submitted, Taxpayers are married individuals who

filed their tax returns jointly. Taxpayers represent that in Year they were in a real
property business as defined by § 469 and were 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.
PLR-143095-09 2

However, Taxpayers filed their joint return for Year without the statement required under
§ 1.469-9(g)(3).

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) indicates 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 301.9100-2 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.
PLR-143095-09 3

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, Taxpayers are
granted an extension of time of sixty (60) days from the date of this letter (but in no
event later than the authorized period for filing an amended return for Year) 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. 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. 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
Taxpayers satisfy the requirements under § 469(c)(7)(B) or whether Taxpayers
materially participate in any 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 representative.

                                               Sincerely,




                                               Curt G. Wilson
                                               Associate Chief Counsel
                                               (Passthroughs and Special Industries)

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