PLR 1030023: Extension granted for late Form 3115 filing

Plain-English summary

The IRS granted a real estate investment trust an extension of time to file Form 3115, which requested a change in its accounting method for depreciable assets. The taxpayer had timely filed a duplicate with the IRS national office, but its federal income tax return and the original Form 3115 were mailed one day late after a post office's hours had changed without the Postal Service website being updated. The IRS found that the requirements for relief under sections 301.9100-1 and 301.9100-3 were satisfied, so it would consider the previously filed Form 3115. The ruling did not extend the deadline for the income tax return and expressed no opinion on the taxpayer's REIT status or the proposed property classifications.

Ruling snapshot

• Question: Could the taxpayer receive more time to file the original Form 3115 with its late federal income tax return?
• Outcome: Approved
• Key authorities: IRC §§ 446(e), 481(a), 6501(a), 6662, and 6110(k)(3); Treas. Reg. §§ 1.446-1(e)(2)(i), 1.446-1(e)(3)(i), and 301.9100-1 through 301.9100-3; Rev. Proc. 2008-52

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201030023 Third Party Communication: None
Release Date: 7/30/2010 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.10-01 ------------------------, ID No. -------------------
---------------------------------------------------
Telephone Number:
--------------------
--------------------------------------- Refer Reply To:
------------------------------------------------ CC:ITA:7
----------------------------- PLR-152413-09
Date:
--------------------- April 22, 2010

Legend

Taxpayer = ------------------------------------------------------------------------------------------
-----------------------
Date A = --------------------------
Date B = ---------------------------
Date C = ---------------------------
F = ------------------
Year 1 = -------
Year 2 = -------
N = ----------

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

    This ruling responds to a letter dated October 8, 2009, submitted on behalf of

Taxpayer, requesting the Internal Revenue Service (IRS) to grant an extension of time
under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations
for Taxpayer to file its original Form 3115, Application for Change in Accounting
Method, for the taxable year ending Date A (year of change). The facts as represented
by Taxpayer are as follows:

                                                  FACTS

    Taxpayer is a calendar-year corporation that files its Federal income tax returns

as a real estate investment trust (“REIT”). Taxpayer’s overall method of accounting is
an accrual method.
PLR-152413-09 2

   For the taxable year ending Date A, Taxpayer timely filed a duplicate of its

original Form 3115 with the IRS national office as required by section 6.02(3)(a) of Rev.
Proc. 2008-52, 2008-2 C.B. 587, as amplified, clarified, and modified by Rev. Proc.
2009-39, 2009-38 I.R.B. 371, to change its misclassification of depreciable assets
placed in service during its taxable years Year 1 through Year 2. However, Taxpayer
did not timely file its Federal income tax return for the taxable year ending Date A.
Thus, the original Form 3115 that accompanied the return was not attached to a timely
filed Federal income return as required by section 6.02(3)(a) of Rev. Proc. 2008-52.

    For the taxable year ending Date A, Taxpayer had obtained an extension until

Date C to file its Federal income return. Taxpayer completed reviewing and signing its
return for the taxable year ending Date A on the evening of Date C. Upon completing
and signing the return, Taxpayer’s Tax Manager hand carried the return to the F post
office. When Taxpayer checked the U.S. Postal Service’s website on the morning of
Date C, the website reflected that the post office at F closed at N. However, upon
arrival at the F post office well before N, the Tax Manager discovered that the F post
office was closed. Further, no other post office was open. As a consequence,
Taxpayer’s return was mailed the next day and was untimely filed. The U.S. Postal
Service later informed Taxpayer that the F post office changed its hours to close before
N as of Date B, but had not updated its website to reflect this change by Date C.

                              LAW AND ANALYSIS

   Section 446(e) of the Internal Revenue Code and § 1.446-1(e)(2)(i) of the Income

Tax Regulations require a taxpayer to obtain the consent of the Commissioner before
changing a method of accounting for Federal income tax purposes. To obtain the
Commissioner’s consent, § 1.446-1(e)(3)(i) generally requires a taxpayer to timely file a
Form 3115. Rev. Proc. 2008-52 provides procedures by which a taxpayer may obtain
the automatic consent of the Commissioner for specified changes in methods of
accounting under § 446(e).

   Section 6.02(3)(a) of Rev. Proc. 2008-52 provides that a taxpayer changing a

method of accounting pursuant to Rev. Proc. 2008-52 must complete and file a Form
3115 in duplicate. The original must be attached to the taxpayer's timely filed (including
extensions) original Federal income tax return for the year of change, and a signed copy
of the Form 3115 must be filed with the IRS national office no earlier than the first day of
the year of change and no later than when the original is filed with the Federal income
tax return for the year of change.

   Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable

extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a
regulatory election.
PLR-152413-09 3

   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 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 subject to § 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 the grant of
relief will not prejudice the interests of the Government.

     Section 301.9100-3(b)(1) provides that, except as provided in § 301.9100-

3(b)(3)(i) through (iii), a taxpayer will be deemed to have acted reasonably and in good
faith if the taxpayer: (i) requests relief before the failure to make the regulatory election
is discovered by the IRS; (ii) failed to make the election because of intervening events
beyond the taxpayer’s control; (iii) failed to make the election because, after exercising
reasonable diligence (taking into account the taxpayer’s experience and the complexity
of the return or issue), the taxpayer was unaware of the necessity for the election; (iv)
reasonably relied on the written advice of the IRS; or (v) 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.

    However, the taxpayer will not be considered to have acted reasonably and in

good faith if the taxpayer seeks to alter a return position for which an accuracy-related
penalty has been or could be imposed under § 6662 at the time the taxpayer requests
relief and the new position requires or permits a regulatory election for which relief is
requested. Additionally, if the taxpayer was informed in all material respects of the
required election and related tax consequences but chose not to file the election, or
uses hindsight in requesting relief, the taxpayer ordinarily will not be considered to have
acted reasonably and in good faith.

   Section 301.9100-3(c)(1) provides in pertinent part that the Commissioner will

grant a reasonable extension of time to make a regulatory election only when the
interests of the Government will not be prejudiced by granting the relief.

   Section 301.9100-3(c)(1)(i) provides that the interests of the Government are

prejudiced if granting relief would result in a taxpayer having a lower tax liability in the
aggregate for all tax years affected by the regulatory election than the taxpayer would
have had if the election had been timely made (taking into account the time value of
money). Likewise, when the tax consequences of more than one taxpayer are affected
by the election, the Government‘s interests are prejudiced if extending the time for
making the election may result in the affected taxpayers, in the aggregate, having a
lower tax liability than if the election had been timely made.
PLR-152413-09 4

    Further, the interests of the Government are ordinarily prejudiced if the tax year

in which the regulatory election should have been made or any tax years that would
have been affected by the election had it been timely made are closed by the period of
limitations on assessment under § 6501(a) before the taxpayer’s receipt of a ruling
granting relief under 301.9100-3. Section 301.9100-3(c)(1)(ii).

   Section 301-9100-3(c)(2) provides special rules for accounting method regulatory

elections. This section provides, in relevant part, that the interests of the Government
are deemed to be prejudiced by granting an extension of time except in unusual and
compelling circumstances if the accounting method regulatory election for which relief is
requested is subject to the procedure described in § 1.446-1(e)(3)(i) (requiring the
advance written consent of the Commissioner) or if the accounting method regulatory
election for which relief is requested requires an adjustment under § 481(a).

                                     RULING

    Based solely on the facts and representations submitted, we conclude that the

requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly, an
extension of time is hereby granted Taxpayer to file a Form 3115, requesting permission
to change its method of accounting for depreciation for Federal income tax purposes,
effective for the taxable year ending Date A. The Form 3115 that was filed previously
by Taxpayer will thus now be considered by the IRS. A copy of this letter should be
associated with the Form 3115 that accompanied Taxpayer’s Federal income return
filed for the taxable year ending Date A.

   Except as specifically set forth above, we express no opinion concerning the tax

consequences of the facts described above under any other provision of the Code.
Specifically, no opinion is expressed or implied regarding (a) whether Taxpayer qualifies
as a REIT under the Code, or (b) whether Taxpayer’s proposed classification of each
item of depreciable property that is the subject of Taxpayer’s Form 3115 is proper under
Rev. Proc. 87-56, 1987-2 C.B. 647. Further, this ruling letter does not grant an
extension of time for filing Taxpayer’s Federal income return for the taxable year ending
Date A.

  The ruling contained in this letter is based upon representations submitted by

Taxpayer and accompanied by a penalty of perjury statement executed by an officer of
Taxpayer. These representations are subject to review by the appropriate director in
connection with the examination of Taxpayer’s Federal tax returns.

  This private letter ruling is directed only to Taxpayer. Section 6110(k)(3)

provides that it may not be used or cited as precedent.
PLR-152413-09 5

  In accordance with the power of attorney, we are sending a copy of this letter to

Taxpayer’s authorized representatives. We are also sending a copy of this letter to the
appropriate Industry Director, LMSB.

                                            Sincerely,

                                            Willie E. Armstrong, Jr.

                                            WILLIE E. ARMSTRONG, JR.
                                            Senior Technician Reviewer, Branch 7
                                            Office of Associate Chief Counsel
                                            (Income Tax and Accounting)

Enclosures (2):
copy of this letter
copy for section 6110 purposes