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 was in a real property business, missed the
election under § 469(c)(7) that lets a qualifying taxpayer treat all rental real
estate as a single activity for the passive activity loss rules. The election is
made by attaching a statement to the original return, but their professional
preparer never told them it was available, so they filed without it. They asked
the IRS for more time under the § 301.9100-3 "9100 relief" standards, which allow
a late election when the taxpayer acted reasonably and in good faith and relief
will not prejudice the government. The IRS found those requirements met and granted
120 days from the date of the letter to make the election on an amended return.
The election can matter a great deal to real estate investors, because grouping
all rentals into one activity changes how the material participation and passive
loss rules apply. The IRS expressed no opinion 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: 202006012 Third Party Communication: None
Release Date: 2/7/2020 Date of Communication: Not Applicable
Index Number: 469.00-00, 469.14-00,
9100.00-00 Person To Contact:
---------------------, ID No. ---------------
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------------------------------ Refer Reply To:
CC:PSI:B03
PLR-119411-19
Date:
LEGEND November 14, 2019

A: -------------------

B: ----------------

Year: -------

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

   This letter responds to a letter dated August 19, 2019, submitted on behalf of A

and B, 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 file their tax returns jointly. Taxpayers represent that in Year, A was in a
real property business as defined by § 469(c)(7) and was 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 inadvertently filed their joint return for Year without the
statement required under § 1.469-9(g)(3).

                                         LAW

    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
PLR-119411-19 2

the requirements of section 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.

   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
six months except in the case of a taxpayer who is abroad), under all subtitles of the
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 Federal Register.

   Sections 301.9100-1 through 301.9100-3 provide the standards that the

Commissioner will use to determine whether to grant an extension of time to make an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides rules for requesting extensions 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 (including affidavits described in § 301.9100-3(e)) to establish to the
satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good
faith, and (2) the grant of relief will not prejudice the interests of the Government.

                                   CONCLUSION

    Based solely on the facts submitted and the representations made, we conclude

that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a
result, A and B are granted an extension of one hundred-twenty (120) days from the
date of this letter to make a § 469(c)(7)(A) election to treat all their interests in rental
real estate as a single rental real estate activity for its taxable year ended Year. The
election must be in the form of the statement required by § 1.469-9(g)(3) and attached
to an amended return for the taxable year ended Year filed with the applicable service
center. A copy of this letter should be attached to the election filed.

    Except for the specific ruling above, we express or imply no opinion concerning

the federal tax consequences of the facts of this case 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.
PLR-119411-19 3

   The ruling contained in this letter is based upon information and representations

submitted by Taxpayers and accompanied by a penalty of perjury statement executed
by the appropriate party. While this office has not verified any of the material submitted
in support of the ruling request, 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.

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter ruling to your authorized representatives.

                                  Sincerely,

                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)



                            By:   ____________________________
                                  Wendy L. Kribell
                                  Senior Counsel, Branch 3
                                  Office of Associate Chief Counsel
                                  (Passthroughs & Special Industries)

Enclosures (2):

Copy of this letter
Copy of this letter for § 6110 purposes
PLR-119411-19 4

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