PLR 1350020: IRS permits a retroactive QEF election for a PFIC investment

Plain-English summary

The IRS considered a corporation's request to make a retroactive qualified electing fund election for an investment in a foreign corporation treated as a passive foreign investment company. The corporation had not made the QEF election by the applicable deadline and provided an affidavit describing the events that led to the failure. The IRS granted consent after the corporation represented that the PFIC issue had not been raised on audit. The corporation still had to follow the timing and procedural rules in Treas. Reg. § 1.1295-3(g).

Ruling snapshot

• Question: Could the corporation make a retroactive QEF election for its investment in the foreign corporation?
• Outcome: Approved
• Key authorities: IRC § 1295; Treas. Reg. §§ 1.1295-3(f), 1.1295-3(g)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201350020 Third Party Communication: None
Release Date: 12/13/2013 Date of Communication: Not Applicable
Index Number: 1295.02-02
Person To Contact:
------------------------------ ---------------------------, ID No. --------------
-------------------------------------------------- Telephone Number:
----------------------------- ----------------------
----------------------------------------------- Refer Reply To:
CC:INTL:B02
PLR-134525-12
Date:
September 09, 2013

              TY: -------

Legend

Taxpayer = -------------------------------------------------------
FC = ---------------------------------
State = --------------
Year 1 = -------
Year 2 = -------
Date 1 = -------------------
Date 2 = ----------------------------
Date 3 = ----------------------------
Director of Tax = -----------------------
Law Firm = ------------
Accounting Firm A = ---------
Accounting Firm B = ---------------------

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

This is in response to a letter dated August 3, 2012, submitted by Taxpayer’s authorized
representatives that requested the consent of the Commissioner of the Internal
Revenue Service (“Commissioner”) to make a retroactive qualified electing fund (“QEF”)
election under section 1295(b) of the Internal Revenue Code (the “Code”) and Treas.
Reg. §1.1295-3(f) with respect to Taxpayer’s investment in FC.

The ruling contained in this letter is based upon information and representations
submitted on behalf of Taxpayer by its authorized representatives, and accompanied by
a penalty of perjury statement executed by an appropriate party. While this office has
not verified any of the material submitted in support of this request for ruling, such
material is subject to verification on examination. The information submitted in the
request is substantially as set forth below.
PLR-134525-12 2

FACTS

Taxpayer is a corporation organized under the laws of State. It is classified as an
association taxable as a corporation for U.S. federal income tax purposes. Taxpayer is
a publicly traded company.

Taxpayer is currently taxed as a corporation and pays federal and applicable state
corporate taxes on its taxable income. ----------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------

--------------------------------------------.

Taxpayer invested in FC on Date 1. FC has been a PFIC with respect to Taxpayer
since Date 1.

Taxpayer submitted an affidavit, under penalties of perjury, which describes the events
that led to its failure to make a QEF election with respect to FC by the election due date,
including the roles of Law Firm, Accounting Firm A, Accounting Firm B, and Taxpayer’s
Director of Tax at that time.

Taxpayer represents that, as of the date of this request for ruling, the PFIC status of FC
has not been raised by the IRS on audit for any of the taxable years at issue.

RULING REQUESTED

Taxpayer requests the consent of the Commissioner to make a retroactive QEF election
with respect to FC for Year 2 under Treas. Reg. §1.1295-3(f).

LAW

Section 1295(a) provides that a PFIC will be treated as a QEF with respect to a
shareholder if (1) an election by the shareholder under section 1295(b) applies to the
PFIC for the taxable year; and (2) the PFIC complies with the requirements prescribed
by the Secretary for purposes of determining the ordinary earnings and net capital gains
of the company.

Under section 1295(b)(2), a QEF election may be made for a taxable year at any time
on or before the due date (determined with regard to extensions) for filing the return for
the taxable year. To the extent provided in regulations, the election may be made after
PLR-134525-12 3

the due date if the shareholder failed to make an election by the due date because the
shareholder reasonably believed the company was not a PFIC.

Under Treas. Reg. §1.1295-3(f), a shareholder may request the consent of the
Commissioner to make a retroactive QEF election for a taxable year if:

   1. the shareholder reasonably relied on a qualified tax professional, within the
      meaning of Treas. Reg. §1.1295-3(f)(2);
   2. granting consent will not prejudice the interests of the United States
      government, as provided in Treas. Reg. §1.1295-3(f)(3);
   3. the request is made before a representative of the Internal Revenue Service
      raises upon audit the PFIC status of the company for any taxable year of the
      shareholder; and
   4. the shareholder satisfies the procedural requirements of Treas. Reg. §1.1295-
      3(f)(4).

The procedural requirements include filing a request for consent to make a retroactive
election with, and submitting a user fee to, the Office of the Associate Chief Counsel
(International). Treas. Reg. §1.1295-3(f)(4)(i). Additionally, affidavits signed under
penalties of perjury must be submitted that describe:

   1. the events that led to the failure to make a QEF election by the election due
      date;
   2. the discovery of the failure;
   3. the engagement and responsibilities of the qualified tax professional; and
   4. the extent to which the shareholder relied on the professional.

Treas. Reg. §§1.1295-3(f)(4)(ii) and (iii).

CONCLUSION

Based on the information submitted and representations made with Taxpayer’s ruling
request, we conclude that Taxpayer has satisfied Treas. Reg. §1.1295-3(f).
Accordingly, consent is granted to Taxpayer to make a retroactive QEF election with
respect to FC for Year 2, provided that Taxpayer complies with the rules under Treas.
Reg. §1.1295-3(g) regarding the time and manner for making the retroactive QEF
election.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This private letter ruling is directed only to the taxpayer requesting it. Section
6110(k)(3) provides that it may not be used or cited as precedent.
PLR-134525-12 4

In accordance with the Power of Attorney on file with this office, copies of this letter
ruling are being sent to your authorized representatives.

A copy of this letter ruling must be attached to any federal income tax return to which it
is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this
requirement by attaching a statement to their return that provides the date and control
number of the letter ruling.

                                              Sincerely,


                                              Jeffery G. Mitchell
                                              Chief, Branch 2
                                              Office of the Associate Chief
                                              Counsel (International)

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