PLR 1344003: IRS grants extra time to file Form 3115 for repair-cost accounting changes

Plain-English summary

A consolidated taxpayer intended to use the automatic accounting-method change procedure for repair and maintenance costs that did not need to be capitalized. Its accounting firm filed Form 3115 with the tax returns and with the IRS in Ogden, but failed to file the required copies with the IRS National Office by the due date. The IRS found that the taxpayer reasonably relied on a qualified tax professional, acted in good faith, and that granting relief would not prejudice the government. It granted a 60-day extension to file the copies of Form 3115, subject to the limitations stated in the ruling.

Ruling snapshot

• Question: Could the taxpayer file late copies of Form 3115 to change its accounting method for qualifying repair and maintenance costs?
• Outcome: Approved, a 60-day extension was granted
• Key authorities: IRC §§ 263(a), 446, and 481(a); Treas. Reg. §§ 1.446-1 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201344003 Third Party Communication: None
Release Date: 11/1/2013 Date of Communication: Not Applicable
Index Number: 9100.10-00, 9100.10-01
Person To Contact:
------------------------------- ----------------------, ID No. -----------------
--------------------------------------------- Telephone Number:
------------------------------------------------- ---------------------
------------------ Refer Reply To:
----------------------------------- CC:ITA:B03
PLR-106799-13
Date:
July 23, 2013

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

B = --------------------------

Date 1 = -------------------------------------------------

Date U = ---------------------------

X = ---------------------------------------------------------------------------------------------------------------

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

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

           This responds to the letter dated February 11, 2013 submitted on your

behalf by your authorized representative. That letter requests an extension of time for B
and its wholly owned subsidiaries listed on the attachment, (“C”) (“Taxpayer”), to file
copies of Form 3115, Application for Change in Accounting Method, to automatically
change their method of accounting to deduct repair and maintenance costs not required
to be capitalized under section 263(a) of the Internal Revenue Code pursuant to the
provisions of Rev. Proc. 2011-14, 2011-4 C.B. 330 with the IRS National Office for the
taxable year beginning January 1, 2011 (year of change.) This request is made in
accordance with sections 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations. Taxpayer files a consolidated tax return and uses the
accrual method of accounting and has a calendar year end.

FACTS

  Taxpayer is in the business of X. For the tax year ended Date 1 , Taxpayer

requested Accounting Firm A to prepare and file Form 3115. Taxpayer’s Forms 3115
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were filed with its timely filed U.S. federal income tax returns for Date 1. Taxpayer also
timely filed copies of its Forms 3115 with the IRS in Ogden, Utah as required by section
3.06(3) in the Appendix to Rev. Proc. 2011-14. In addition, Taxpayer requested and
received District Director consent prior to the filing of its 2011 U.S. federal income tax
return, as required by section 6.03(4) in the Appendix to Rev. Proc. 2011-14, and
provided a copy to the IRS Exam team.

   Taxpayer was required to file copies of the properly completed Form 3115 with

IRS National Office no earlier than the first day of the year of change and no later than
the date on which Taxpayer filed its U.S. federal income tax return for the year ending
on Date 1, the “due date”. Taxpayer requested Accounting Firm A to do so. On or
about Date U, Accounting Firm A discovered that it inadvertently failed to file Form 3115
with the IRS National Office by the “due date”. Accounting Firm A advised Taxpayer
and Taxpayer requested A to request an extension of time to file the Form 3115.

LAW AND ANALYSIS

    Section 1.446-1(d)(2)(i) of the Income Tax regulations provides that a taxpayer

that changes a method of accounting must secure the consent of the Commissioner.
Section 6.01 of Rev. Proc. 2011-14 provides that the consent of the Commissioner is
granted to any taxpayer to change its method of accounting for a method described in
the revenue procedure as long as a taxpayer complies with all the applicable provisions
of the revenue procedure and implements the change in the method of accounting for
the requested year of change.

    Section 6.02(3)(a) of Rev. Proc. 2011-14 provides that a taxpayer changing a

method of accounting pursuant to the revenue procedure must complete and file the
application in duplicate. Section 6.02(3)(a)(i) provides that the original application must
be attached to the taxpayer’s timely filed (including any extension) original U.S. federal
income tax return implementing the change in method of accounting for the year of
change. Section 6.02(3)(a)(ii)(A) provides that a copy of the application must be filed
with the IRS National Office no earlier than the first day of the year of change and no
later than the date the taxpayer files the original with the federal income tax return for
the year of change.

    Section 6.02(3)(d)(i) of Rev. Proc. 2011-14 provides an automatic extension of

six months from the due date of the return for the year of change (excluding any
extension) to file an application, provided certain conditions are met. If these conditions
are not met, an extension will only be granted if the requirements of section 301.9100-3
of the regulations are satisfied.

  Section 301.9100-1(a) gives the Service discretionary authority to grant a

reasonable extension of time to make a regulatory election, provided that the time for
making such election is not expressly prescribed by statute. Section 301.9100-1(b)
PLR-106799-13 3

defines the term “regulatory election” as including an election whose due date is
prescribed by a regulation, revenue ruling, revenue procedure, notice, or
announcement. Sections 301.9100-1 through 301.9100-3 provide the standards the
Service will use to determine whether to grant an extension of time to make a regulatory
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for making regulatory
elections that do not meet the requirements of section 301.9100-2.

   Section 301.9100-3 provides that requests for extensions of time for regulatory

elections will be granted when the taxpayer provides evidence (including affidavits
described in the regulations) to establish to the satisfaction of the Commissioner that
the taxpayer acted reasonably and in good faith and granting relief will not prejudice the
interests of the government.

  Section 301.9100-3(b)(1) states that a taxpayer will be deemed to have acted

reasonably and in good faith if the taxpayerB

  (i) requests relief before the failure to make the regulatory election is discovered
  by the Service;
  (ii) inadvertently failed to make the election because of intervening events
  beyond the taxpayer's control;
  (iii) failed to make the election because, after exercising due diligence, the
  taxpayer was unaware of the necessity for the election;
  (iv) reasonably relied on the written advice of the Service; or
  (v) reasonably relied on a qualified tax professional, and the tax
  professional failed to make, or advise the taxpayer to make, the election.

  The affidavits presented show that Taxpayer acted reasonably and in good faith,

having reasonably relied on a qualified tax professional who failed to make the election.

  Under section 301.9100-3(b)(3), a taxpayer will not be considered to have acted

reasonably and in good faith if the taxpayer--

  (i) seeks to alter a return position for which an accuracy-related penalty
  has been or could be imposed under section 6662 at the time the taxpayer
  requests relief (taking into account section 1.6664-2(c)(3) of the Income
  Tax Regulations) and the new position requires a regulatory election for
  which relief is requested;
  (ii) was informed in all material respects of the required election and
  related tax consequences, but chose not to file the election; or
  (iii) uses hindsight in requesting relief. If specific facts have changed
  since the original deadline that make the election advantageous to a
  taxpayer, the Service will not ordinarily grant relief.

PLR-106799-13 4

Taxpayer is not seeking to alter a return position for which an accuracy-related penalty
has been or could be imposed under section 6662 at the time relief is requested and
was not informed in all material respects of the required election, and its related tax
consequences and chose not to make the election. Furthermore Taxpayer is not using
hindsight in requesting relief. Taxpayer has represented that specific facts have not
changed since the original deadline that make the election advantageous to Taxpayer.

   Section 301.9100-3(c)(1)(i) provides, in part, that the interests of the government

are prejudiced if granting relief would result in the taxpayer having a lower tax liability in
the aggregate for all taxable years affected by the election than the taxpayer would
have had if the election had been timely made (taking into account the time value of
money). Section 301.9100-3(c)(1)(ii) provides, in part, that the interests of the
government are ordinarily prejudiced if the taxable year in which the regulatory election
should have been made, or any taxable years that would have been affected by the
election had it been timely made, are closed by the period of limitations on assessment.

    Under these criteria, the interests of the government are not prejudiced in this

case. Taxpayer has represented that granting relief would not result in Taxpayer
having a lower tax liability in the aggregate for all taxable years affected by the election
than if the election had been timely made (taking into account the time value of money).
Furthermore, the taxable year in which the regulatory election should have been made
and any taxable years that would have been affected by the election had it been timely
made, are not closed by the period on assessment.

     Section 301.9100-3(c)(2) imposes special rules for accounting method regulatory

elections. The section provides, in relevant part, that the interests of the Government
are deemed to be prejudiced except in unusual and compelling circumstances if the
accounting method regulatory election for which relief is requested requires an
adjustment under section 481(a) (or would require an adjustment under section 481(a) if
the taxpayer changed to the method of accounting for which relief is requested in a
taxable year subsequent to the taxable year the election should have been made).
Similarly Section 6.02(3)(d)(ii) of Rev. Proc. 2011-14 provides that a taxpayer that fails
to file the application for the year of change as provided in sections 6.02(a)(b) or (d)(1)
of the revenue procedure will not be granted an extension of time under section
301.9100-3(c)(2) except in unusual and compelling circumstances.

  Based on the facts and representations submitted, including an affidavit, unusual

and compelling circumstances have been demonstrated.

  Accordingly, the consent of the Commissioner is hereby granted to Taxpayer for

an extension of time to file the copies of Form 3115 with the IRS National Office
requesting permission to change their methods of accounting to deduct repair and
maintenance costs not required to be capitalized under section 263(a) under Rev. Proc.
2011-14, 2011-4 C.B. 330 for the tax year ending on Date 1. This extension shall be for
PLR-106799-13 5

a period of 60 days from the date of this ruling. A copy of this letter must be attached to
any income tax return to which it is relevant.

    Except as expressly 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 concerning whether: (1) Taxpayer is
eligible to file the Form 3115 at issue under Rev. Proc 2011-14; (2) Taxpayer otherwise
meets the requirements of Rev. Proc. 2011-14; or (3) Taxpayer’s proposed method of
accounting described in Form 3115 is a permissible method of accounting.

    This ruling is based upon information and representations submitted by Taxpayer

and accompanied by a penalty of perjury statement executed by appropriate parties.
While this office has not verified any of the material submitted in support of the request
for rulings, it is subject to verification on examination.

  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, we are sending copies of this letter to

Taxpayer’s authorized representative. We are also sending a copy of this letter to the
appropriate operating division director. Enclosed is a copy of the letter ruling showing
the deletions proposed to be made in the letter when it is disclosed under § 6110 of the
Internal Revenue Code.

                                               Sincerely,



                                               _____________________________
                                               Christopher F. Kane
                                               Branch Chief, Branch 3
                                               Office of the Associate Chief Counsel
                                               (Income Tax & Accounting)

Attachment: Attachment C

cc: --------------------------------------------
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PLR-106799-13 6

Attachment C:

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

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