Late "eligible acquisition transaction" election allowed so a partnership can recognize its full section 481(a) adjustment in the sale year

Plain-English summary

A health-care LLC taxed as a partnership sold part of its business and, by contract, changed from the cash method to an accrual method of accounting and agreed to recognize its entire section 481(a) catch-up adjustment in the year of the sale. Its accounting firm timely filed the Form 3115 but forgot to file the two election statements that Rev. Proc. 2015-13 requires to make this "eligible acquisition transaction election." The firm caught the oversight while preparing the next year's return, and the taxpayer asked for late-election relief under Treasury Regulation §§ 301.9100-1 and 301.9100-3. The IRS concluded the taxpayer acted reasonably and in good faith and that relief would not prejudice the government (a prior-year exam had already closed without any change to the accounting method). It granted 45 days from the date of the letter to file the missing election statements.

Ruling snapshot

• Question: May a partnership get more time under § 301.9100-3 to file the election statements needed to recognize its full section 481(a) adjustment in the year of an acquisition transaction?
• Outcome: Approved (45-day extension granted).
• Key authorities: Treas. Reg. §§ 301.9100-1 and 301.9100-3; Rev. Proc. 2015-13, § 7.03(3)(d); IRC § 481(a).

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202223002 Third Party Communication: None
Release Date: 6/10/2022 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
------------------------------------------------------------ ------------------------, ID No. ---------------
------------------------------------------------ Telephone Number:
------------------------------------------------------------ --------------------
--------- Refer Reply To:
-------------------------------------------- CC:ITA:6
------------------------------------ PLR-107371-21
Date:
August 31, 2021

                                                 Legend

Taxpayer = ----------------------------------------------------------------------------------------------------

Date = ------------------
X = ---
Accounting Firm: ----------------------
Year = -------

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

This ruling responds to a letter dated March 31, 2021 that requests an extension of time
pursuant to §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations for Taxpayer to make the “eligible acquisition transaction election” provided
in section 7.03(3)(d) of Rev. Proc. 2015-13, 2015-51 I.R.B. 419. This ruling is being
issued electronically in accordance with Rev. Proc. 2020-29, 2020-21 I.R.B. 859. A
paper copy will not be mailed to Taxpayer.

                                                 FACTS

Taxpayer is a Limited Liability Company treated as a partnership for federal income tax
purposes. It files a Form 1065, U.S. Return of Partnership Income, on a calendar year
basis. Taxpayer provides health care services for children and adults with autism and
related disorders.

On Date, Taxpayer sold a X percent interest in its business to an unrelated limited
liability company in a transaction that it says was structured as a taxable purchase and
sale of a partnership interest. Prior to this transaction, Taxpayer used the overall cash
PLR-107371-21 2

receipts and disbursements method of accounting. Taxpayer’s purchase and sales
agreement stipulated that it would change to an overall accrual method of accounting
and would recognize the entire net positive adjustment determined under IRC § 481(a)
of the Internal Revenue Code that resulted from the change in accounting method in the
year of the sale. The agreement required Taxpayer to timely file a Form 3115,
Application for Change in Accounting Method, to change to an accrual method. It also
required Taxpayer to fulfill the requirements of Rev. Proc. 2015-13 in making the eligible
acquisition transaction election, and to allocate all taxable items arising from the
election in accordance with IRC § 706.

Taxpayer hired Accounting Firm to prepare its Form 1065 for the year of the sale and, in
a separate engagement with the same firm, to prepare its Form 3115 requesting
permission to change to an accrual method of accounting. Accounting Firm timely
prepared and filed both the Form 1065 and the Form 3115, including the signed copy of
the Form 3115 required to be filed with the Internal Revenue Service. Taxpayer also
recognized the entire net positive IRC § 481(a) adjustment in the year of change
identified by the Form 3115 in accordance with the agreement. Each owner or
beneficiary of Taxpayer has completed a statement stating that they have not (or will
not) apply the limitation on tax found in IRC § 481(b) and § 1.481-2 of the Income Tax
Regulations. However, Accounting Firm failed to prepare or file either of the two
election statements specified by section 7.03(d) of Rev. Proc. 2015-13.1 Accounting
Firm discovered this oversight while it was preparing Taxpayer’s Form 1065 for the
subsequent year. Soon thereafter, this ruling request was submitted.

Taxpayer has disclosed that it was under examination for the year of change identified
by the Form 3115 discussed previously. The examiner became aware during the
examination that Taxpayer had submitted this request for 9100 relief. However,
Taxpayer’s accounting method never became an issue in the examination and no
changes to the Taxpayer’s accounting method were proposed. This examination has
closed.

                             RULING REQUESTED

Taxpayer is requesting an extension of time under Treas. Reg. §§ 301.9100-1 and
301.9100-3 to make the eligible acquisition transaction election provided in section
7.03(3)(d) of Rev. Proc. 2015-13 to recognize the entire net positive IRC § 481(a)
adjustment that is associated with the change from the cash receipts and
disbursements method to an accrual method that is discussed in this ruling.

                                       LAW

1 One is required to be attached to a taxpayer’s original tax return and the other one is
required to be filed with the Internal Revenue Service in Washington, DC.
PLR-107371-21 3

Treas. Reg. §§ 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 an
election. Treas. Reg. § 301.9100-2 provides automatic extensions of time for making
certain elections. Treas. Reg. § 301.9100-3 provides extensions of time for making
elections that do not meet the requirements of Treas. Reg. § 301.9100-2.

Treas. Reg. § 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in Treas. Reg. §§ 301.9100-2 and
301.9100-3 to make certain regulatory elections.

Treas. Reg. § 301.9100-1(b) defines a “regulatory election” as 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.

Treas. Reg. § 301.9100-3(a) provides that requests for relief under Treas. Reg.
§ 301.9100-3 will be granted when the taxpayer provides evidence to establish to the
satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith,
and that granting relief will not prejudice the interests of the government.

Treas. Reg. § 301.9100-3(c)(1) provides that the interests of the government are
prejudiced if granting relief would result in the taxpayer having a lower tax liability in the
aggregate for all taxable years affected by the election than the taxpayer would have
had if the election had been timely made. The interests of the government are ordinarily
prejudiced if the taxable year in which the regulatory election should have been made,
or any taxable years that would have been affected by the election had it been timely
made, are closed by the period of limitations on assessment.

Treas. Reg. § 301.9100-3(c)(2) provides special rules for accounting method regulatory
elections . Treas. Reg. § 301.9100-3(c)(2) provides that the interests of the government
are deemed prejudiced, except in unusual or compelling circumstances, if the
accounting method regulatory election for which relief is requested is subject to the
procedure described in Treas. Reg. § 1.446-1(e)(3)(i), requires an adjustment under
IRC § 481(a) (or would require an adjustment under IRC § 481(a) if the taxpayer
changed to the method of accounting for which relief is requested in a taxable year
subsequent to the taxable year the election should have been made), would permit a
change from an impermissible method of accounting that is an issue under
consideration by examination, an appeals office, or a federal court and the change
would provide a more favorable method or more favorable terms and conditions than if
the change were made as part of an examination; or provides a more favorable method
of accounting or more favorable terms and conditions if the election is made by a certain
date or taxable year.

Section 6.03(4)(b) of Rev. Proc. 2015-13 provides that “(e)xcept in unusual and
compelling circumstances . . . a taxpayer . . . is not eligible to make a late election under
(section) 7.03(3)(d) under (Treas. Reg.) §§ 301.9100-1 and 301.9100-3. See
PLR-107371-21 4

(Treas. Reg.) § 301.9100-3(c)(2) and Rev. Proc. 2014-1 (or successor).”

                               CONCLUSION

Based solely on the facts and representations presented, we conclude that Taxpayer
has satisfied the requirements of Treas. Reg. §§ 301.9100-1(c) and 301.9100-3.
Accordingly, we hereby grant Taxpayer an extension of time to file the eligible
acquisition transaction election statements that contains the information required by
section 7.03(3)(d) of Rev. Proc. 2015-13. This extension shall be for a period of 45
days from the date of this letter ruling. Filing these two statements is the only change
permitted by this ruling to be made to Taxpayer’s Form 1065 that it filed for Year.

Except as expressly set forth above, we express no opinion concerning the facts
described above under any other provision of the Code or Regulations. Specifically, we
express no opinion express or implied concerning: (1) whether Taxpayer is eligible for
the accounting method it has made under Rev. Proc. 2015-13; and (2) whether it is
eligible to make the eligible transaction election.

The ruling contained in this letter is based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party. We have not verified any of the facts or representations submitted
with this request. They are subject to verification upon examination.

This ruling is directed only to Taxpayer that requested it. IRC § 6110(k)(3) provides that
it may not be used or cited as precedent.

In accordance with the power of attorney on file with this office, we are furnishing a copy
of this letter to each of Taxpayer’s authorized representatives.

                                  Sincerely,



                                  Cheryl L. Oseekey
                                  Senior Counsel, Branch 6
                                  (Income Tax & Accounting)

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