PLR 1027028: IRS granted a late election to treat rental real estate as one activity

Plain-English summary

The IRS granted married taxpayers extra time to elect to treat all of their interests in rental real estate as one rental real estate activity. The taxpayers were engaged in a real property business and were eligible to make the election, but their joint return did not include the required statement. The IRS found that the standards for discretionary relief were satisfied and gave them 60 days from the ruling date to attach the statement to an amended return. The ruling did not decide whether the taxpayers 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: 201027028 Third Party Communication: None
Release Date: 7/9/2010 Date of Communication: Not Applicable
Index Number: 9100.00-00, 469.00-00,
469.03-00, 469.03-03 Person To Contact:
-------------------, ID No. -------------
---------------------------------------------- Telephone Number:
----------------------------- ---------------------
-------------------------------- Refer Reply To:
CC:PSI:B02
PLR-147541-09
Date:
March 12, 2010

Taxpayers = -----------------------------------------------------------------------------------------------
-------------------------------------------------

Year = -------

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

   This responds to a letter dated October 7, 2009, and subsequent

correspondence, submitted on behalf of Taxpayers by their authorized representative,
requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations for Taxpayers 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.

    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.
However, Taxpayers filed their joint return for Year 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 trade or 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
PLR-147541-09 2

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 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 including an election whose due date is prescribed by a
regulation published in the Internal Revenue Bulletin.

   Sections 301.9100-1 through 301.9100-3 provide the standards the

Commissioner will use to determine whether to grant an extension of time to make the
election.

   Section 301.9100-2 provides the rules governing automatic extensions of time for

making certain elections. 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.

    Section 301.9100-3 provides that requests for relief under § 301.9100-3 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 the grant
of 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, Taxpayers are granted an extension of time of 60 days from the date of this
letter 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. 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. Specifically, no opinion is expressed concerning whether Taxpayers satisfy the
requirements under § 469(c)(7)(B) or whether Taxpayers materially participate in any
activity.
PLR-147541-09 3

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of

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

     In accordance with the power of attorney on file with this office, a copy of this

letter is being sent to your authorized representative.

                                    Sincerely,

                                    Associate Chief Counsel
                                    (Passthroughs & Special Industries)


                              By: ____________________________
                                  Bradford R. Poston, Senior Counsel
                                  Branch 2
                                  Office of Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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