PLR 1327007: IRS grants a taxpayer more time to make a mixed straddle account election

Plain-English summary

The IRS granted a corporate taxpayer an extension of time to make a mixed straddle account election for a tax year. The taxpayer's employee responsible for the federal consolidated tax return left without documenting the election requirements, and the remaining employees did not know the applicable rules. The taxpayer discovered the missed deadline while preparing a tax return, promptly sought tax advice, and requested a private letter ruling before the end of the tax year. The IRS concluded that these facts showed reasonable cause under section 1092 and allowed the election to be made within 30 days of the ruling.

Ruling snapshot

• Question: Did the taxpayer have reasonable cause for failing to make a timely mixed straddle account election, so that it could receive an extension?
• Outcome: Approved
• Key authorities: IRC §§ 1092, 1256, and 6110; Treas. Reg. §§ 1.1092(b)-4T(a), 1.1092(b)-4T(b), and 1.1092(b)-4T(f)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201327007 Third Party Communication: None
Release Date: 7/5/2013 Date of Communication: Not Applicable
Index Number: 1092.05-02 Person To Contact:
------------------ ------------------------
------------------------------------------------------------ ID No. ------------------
-------------- Telephone Number:
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---------------------------------- Refer Reply To:
------------------------------- CC:FIP:B03
PLR-150464-12
Date:
April 03, 2013

LEGEND:

Taxpayer = ----------------------------------------------------------------------------

Company = ----------------------------------------------------------------------------
----------------------------------------------------------------------------
--------------------------
State X = --------------
Industry = ----------------------------------------------------------------------------
------------------------
Fiscal Year = ------------------------
Year 1 = -------
Year 2 = -------
Employee 1 = -----------
Employee 2 = ----------------------
Date 1 = ---------------------------
PLR-150464-12 2

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

    This letter responds to a letter dated November 26, 2012, submitted on behalf of

Taxpayer by its authorized representative. Taxpayer requests an extension of time to
file an election under section 1092(b) of the Internal Revenue Code of 1986 and
section 1.1092(b)-4T(f) of the Temporary Income Tax Regulations.

                                      FACTS

   Taxpayer, a State X entity taxed under subchapter C of the Code, is the US

parent of a group of companies. Company is -----% indirectly owned by Taxpayer and is
treated as a corporation under subchapter C of the Code for US federal income tax
purposes. Company is also a controlled foreign corporation (CFC) of Taxpayer for
purposes of subchapter F of the Code. Taxpayer and Company use an accrual method
of accounting and a Fiscal Year for federal income tax purposes.

    Taxpayer is not in the business of trading or dealing in financial positions. Rather,

Taxpayer is in the business of Industry. In order to manage currency exposure, in Year
1, Company entered into several positions in various financial instruments that would be
classified as mixed straddles under section 1092 of the Code. Taxpayer represents that
Company completed a timely filed mixed straddle account election for this class of
activities for Year 1 and intended to do so for Year 2.

   In January of Year 2, Employee 1 (the person primarily responsible for

preparation of the US federal income tax consolidated return) voluntarily ended her
employment. Employee 1 did not leave instructions for her successor concerning mixed
straddle account elections. Taxpayer had no other employees knowledgeable about
section 1092, section 1256, or mixed straddle accounts. Taxpayer did not use any
outside tax advisors for its mixed straddle account elections.

   In August of Year 2, while reviewing and preparing the US consolidated tax

return for Year 1, Employee 2 read the Income Tax Regulations under section 1092 of
the Code to determine how to attach the mixed straddle account election to the tax
return. When reading the regulations, Employee 2 determined that a mixed straddle
account election has unique timing requirements and that the date to file a timely mixed
straddle account election had passed. Taxpayer represents that immediately upon
realization that there might be an issue with the election, it contacted a tax advisor and
began the process of completing a request for a private letter ruling from the Commissioner
that Taxpayer had reasonable cause for failing to make a timely election under section
1092(b)(2)(A)(i)(II) of the Code and section 1.1092(b)-4T(f)(1) of the Regulations. The
request for private letter ruling was submitted before the end of the tax year for which the
election was effective.
PLR-150464-12 3

                               LAW AND ANALYSIS

   Section 1.1092(b)-4T(a) of the Regulations generally permits a taxpayer to elect

(in accordance with paragraph (f) of section 1.1092(b)-4T) to establish one or more
“mixed straddle accounts.” Section 1.1092(b)-4T(b) defines a mixed straddle account to
mean an account for determining gains and losses from all positions held as capital
assets in a designated class of activities by the taxpayer at the time the taxpayer elects to
establish a mixed straddle account.

   Section 1.1092(b)-4T(f)(1) of the Regulations generally provides that, except as

otherwise provided, the election to establish one or more mixed straddle accounts for a
taxable year must be made by the due date (without regard to any extensions) of the
taxpayer’s income tax return for the immediately preceding taxable year (or part
thereof). Section 1.1092(b)-4T(f)(1) further provides that if an election is made after the
time specified above, the election will be permitted only if the Commissioner concludes
that the taxpayer had reasonable cause for failing to make a timely election.

                                  CONCLUSIONS

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

has shown reasonable cause for failing to make a timely election under section
1.1092(b)-4T(f) of the Regulations. Therefore, we grant the Taxpayer’s request for an
extension of time to make the election under section 1.1092(b)-4T(a) for the taxable year
ending on Date 1. This extension will expire 30 days from the date of this letter. The
election must be made in the manner prescribed in section 1.1092(b)-4T(f)(2) and
filed with the Director having audit jurisdiction over the Taxpayer’s US federal income
tax consolidated return.

    Except as specifically ruled upon above, no opinion is expressed as to the tax

treatment of the transaction under the provisions of any other sections of the Code and
Regulations which may be applicable thereto, or the tax treatment of any conditions
existing at the time of or effects resulting from the transaction. Specifically, no opinion
is expressed concerning whether the positions designated by Taxpayer as the class of
activities is a permissible designation under section 1.1092(b)-4T(b)(2) of the
Regulations.

  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.
PLR-150464-12 4

     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,




                                           Robert B. Williams
                                           Senior Counsel, Branch 3
                                           Office of Associate Chief Counsel
                                           (Financial Institutions & Products)

Enclosures:
Copy of this letter
Copy for section 6110 purposes