Couple receives more time to group rental real estate activities

Plain-English summary

A married couple represented that they qualified as taxpayers in a real property business but filed their joint return without electing to treat all rental real estate interests as one activity. Their professional return preparer had not advised them that the election was available. The IRS found that the requirements for regulatory election relief were satisfied. It granted 120 days to attach the required election statement to an amended return for the original year, without deciding whether the couple met the real-estate-professional or material-participation requirements.

Ruling snapshot

• Question: Could the couple make a late election to group all rental real estate interests as one activity?
• Outcome: Approved, with 120 days to file the required statement on an amended return.
• Key authorities: IRC § 469(c)(7); Treas. Reg. §§ 1.469-9(g)(3), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                                   Department of the Treasury
                                                           Washington, DC 20224

Number: 201638015                                          [Third Party Communication:
Release Date: 9/16/2016                                    Date of Communication: Month DD, YYYY]
Index Number: 9100.00-00, 469.14-00
                                                           Person To Contact:
----------------------------------------                   ----------------------------, ID No. --------------
--------------------------------------------               -----------------
                                                           Telephone Number:
                                                           --------------------
                                                           Refer Reply To:
                                                           CC:PSI:01
                                                           PLR-140636-15
                                                           Date:
                                                           May 31, 2016


Legend
A      = -----------------------------------------------------------------------------------------------------
         ---------------------------
B      = -----------------------------------------------------------------------------------------------------
         --------------------------
Year 1 = ------


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

       This responds to a letter dated November 19, 2015, together with subsequent
correspondence, submitted on your behalf by your authorized representative requesting
a ruling that you be granted an extension of time under § 301.9100-3 of the Procedure
and Administrative Regulations 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.

                                                  FACTS

        According to the information submitted, A and B (Taxpayers) are married
individuals who file their tax returns jointly. Taxpayers represent that in Year 1 they
were in a real property business as defined by §469(c)(7) 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 represent that they were not advised by
their professional tax return preparer that the election under § 469(c)(7) was available to
them. Taxpayers represent that they filed their joint return for Year 1 without the
statement required under § 1.469-9(g)(3).

                                           LAW AND ANALYSIS
PLR-140636-15                                   2

        Under § 469(c)(2), the term “passive activity” general includes any retnal activity.
Section 469(c)(7) provides a limited exception to this rule for taxpayers in a real
property business. Specifically, § 469(c)(7)(A) provides that if a taxpayer meets the
requirements of § 469(c)(7)(B), the taxpayer’s rental real estate activity will no longer be
presumably passive. By its terms, the exception under § 469(c)(7)(A) is to be applied
as if each interest of the taxpayer n rental real estate were a separate activity.
However, under § 469(c)(7)(A) 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.

       Section 301.9100-1(c) provides that 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) provides
that the term “regulatory election” includes an election whose due date is prescribed by
a regulation published in the Federal Register or a revenue ruling, revenue procedure,
notice, or announcement 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 extension 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 the
regulatory elections that do not meet the requirements of § 301.9100-2. Under
§ 301.9100-3, a request for relief will be granted when a taxpayer provides evidence to
establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonable
and in good faith, and (2) granting relief will not prejudice the interests of the
government.

       Section 301.9100-3(b) provides that, except as provided in § 301.9100-3(b)(3)(i)
through (iii), when a taxpayer 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, the taxpayer will be deemed to have acted
reasonably and in good faith.

                                       CONCLUSION

       Based solely on the facts submitted and the representations made, we conclude
that the requirements of § 301.9100-3 have been satisfied. As a result, Taxpayers are
granted an extension of time of one hundred twenty (120) days form the date of this
PLR-140636-15                                  3

letter to make an election under § 469(c)(7)(A) to treat all of their interests in rental real
estate as a single rental real estate activity effective Year 1. 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 1. A copy of this letter should be attached to the election.

       Except as specifically provided herein, no opinion is expressed or implied
concerning the federal tax consequences of the facts described above under other
provisions 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.

       This ruling is directed only to the taxpayers requesting it. Section 6110(k)(3) of
the Internal Revenue 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 will be
sent to your authorized representatives.



                                       Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)


                                  By: Laura C. Fields
                                      Laura C. Fields
                                      Senior Technician Reviewer, Branch 1
                                      (Passthroughs & Special Industries)

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

cc: