Grants a married couple a late election to group all rental real estate as one activity

Plain-English summary

A married couple, one of whom worked in a real property business, wanted to
treat all of their rental real estate as a single activity for the passive
activity loss rules under § 469(c)(7). Making that election requires attaching
a statement to the original tax return, but their former return preparer never
told them about it, so they missed the deadline. They asked the IRS for extra
time under the § 301.9100-3 "9100 relief" rules, which let the IRS extend a
missed election deadline when the taxpayer acted reasonably and in good faith
and granting relief will not hurt the government. Because the couple reasonably
relied on a tax professional who failed to advise them, the IRS treated them as
having acted in good faith and granted 120 days from the date of the letter to
make the election. The ruling matters to real estate investors: without grouping,
each rental property is tested separately for material participation, which can
trap losses as passive; the election can free those losses. The IRS expressed no
view on whether the couple actually qualifies under § 469(c)(7)(B) or materially
participates.

Ruling snapshot

• Question: May the taxpayers get an extension of time to make a late § 469(c)(7) election to treat all rental real estate as one activity?
• Outcome: approved (120-day extension granted)
• Key authorities: IRC § 469(c)(7); Treas. Reg. § 1.469-9(g)(3); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202006010 Third Party Communication: None
Release Date: 2/7/2020 Date of Communication: Not Applicable
Index Numbers: 469.00-00, 469.03-03,
469.14-00, 9100.00-00 Person To Contact:
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------------------------------------- Refer Reply To:
CC:PSI:B03
PLR-113060-19
Date:
October 30, 2019

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

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

   This responds to a letter dated May 29, 2019 and subsequent correspondence

submitted on your behalf by your authorized representative requesting an extension of
time under § 301.9100-3 of the Procedure and Administration 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 filed a joint tax return in Year 1. The information submitted further
states that, in Year 1, A was engaged in a real property business as defined by
§ 469(c)(7)(C) and that Taxpayers 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
under § 469(c)(7)(A).

   However, Taxpayers represent that they were not advised by their former tax

return preparer about the election under § 469(c)(7). As a result, Taxpayers did not
attach to their Year 1 joint tax return the required statement under § 1.469-9(g)(3) to
make an election under § 469(c)(7). In addition, it is represented that the joint tax return
PLR-113060-19 2

of Taxpayers for Year 1, along with subsequent returns, were not filed consistent with
making this election. Taxpayers instructed their current tax return preparer to seek
relief to make the late § 469(c)(7) election. Taxpayers further represent that they have
acted reasonably and in good faith, and that granting relief will not prejudice the
interests of the Government.

                                      Law and Analysis

    Under § 469(c)(2), the term “passive activity” generally includes any rental

activity. Section 469(c)(7) provides a limited exception to this rule for taxpayers in a real
property trade or 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 presumptively passive. By its terms, the exception under § 469(c)(7)(A) is to
be applied as if each interest of the taxpayer in 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.

   Under § 301.9100-1(c), 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) defines the term
“regulatory election” as including an election whose due date is prescribed by a
regulation 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 extensions 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 regulatory
elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a
request for relief will be granted when the taxpayer provides evidence to establish to the
satisfaction of the Commissioner that (1) the taxpayer acted reasonably 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.
PLR-113060-19 3

                                     Conclusion

    Based solely on the information submitted and the representations made, we

conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
As a result, Taxpayers are granted an extension of time of 120 days from the date of
this 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 set forth above, no opinion is expressed concerning the

federal tax consequences of the facts described above under any other provision 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.

  The rulings contained in this letter are based upon information and

representations submitted by the Taxpayers 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 the request for rulings, it is subject to verification on
examination.

  This ruling is directed only to the taxpayers requesting it. Section 6110(k)(3) of

the Code provides that it may not be used or cited as precedent.
PLR-113060-19 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,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)



                                    By:____________________________
                                       Adrienne M. Mikolashek
                                       Branch Chief, Branch 3
                                       Office of Associate Chief Counsel
                                       (Passthroughs & Special Industries)

Enclosures (2):
Copy of this letter
Copy for § 6110 purposes
PLR-113060-19 5

cc: ---------------------
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