Real estate professional gets late relief to treat all rental properties as one activity

Plain-English summary

A taxpayer in a real property business qualified to make the election under
IRC § 469(c)(7)(A) that treats all of his rental real estate interests as a
single activity, which can make it easier to meet the material-participation
test and deduct rental losses that would otherwise be trapped as passive. His
return preparer never told him the election was available, so he filed without
the required statement and did not treat his properties as one activity on his
returns. He asked the IRS for an extension under Treas. Reg. § 301.9100-3.
Because he reasonably relied on a tax professional who failed to advise him,
the IRS found he acted reasonably and in good faith and granted 120 days to
make the election on an amended return. The IRS expressed no opinion on
whether he actually qualifies under § 469(c)(7)(B) or materially participates.

Ruling snapshot

• Question: Should the taxpayer get an extension of time to make a late IRC § 469(c)(7)(A) election to aggregate his rental real estate as a single activity?
• Outcome: approved (120-day extension granted under Treas. Reg. § 301.9100-3)
• Key authorities: IRC § 469(c)(7); Treas. Reg. §§ 1.469-9(g)(3), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202007015 Third Party Communication: None
Release Date: 2/14/2020 Date of Communication: Not Applicable
Index Numbers: 469.00-00, 469.03-03,
469.14-00, 9100.00-00 Person To Contact:
--------------------, ID No. -----------------
------------------------- Telephone Number:
--------------------------------- ---------------------
------------------------------- Refer Reply To:
CC:PSI:B03
PLR-113249-19
Date:
November 19, 2019

Legend
A = -------------------------
-------------------------

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 represented that in Year 1, A was

engaged in a real property business as defined by § 469(c)(7)(C) and he 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 under § 469(c)(7)(A).

   However, A represents that he was not advised by his tax return preparer that

the election under § 469(c)(7) was available to him. As a result, A filed his tax return for
Year 1 without the statement required under § 1.469-9(g)(3) to make an election under
§ 469(c)(7). In addition, it is represented that A’s tax return for Year 1, along with
subsequent returns, were not filed consistent with making this election because A did
not treat all of his rental real estate activities as a single activity on his Federal income
tax returns. A further represents that he has acted reasonably and in good faith, and
that granting relief will not prejudice the interests of the Government.
PLR-113249-19 2

                                      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-113249-19 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, A is 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 his 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 A satisfies the
   requirements under § 469(c)(7)(B) or whether A materially participates in any activity.

   The rulings contained in this letter are based upon information and
   representations submitted by the taxpayer 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 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 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

cc: