Real estate investor gets more time to elect to treat all rental properties as one activity under section 469(c)(7)

Plain-English summary

Rental real estate is normally treated as a passive activity, but a qualifying taxpayer in a real property business can elect under section 469(c)(7) to treat all of their rental real estate interests as a single activity, which can make it easier to deduct losses. The election is made by attaching a statement to a timely filed return under Treasury Regulation § 1.469-9(g)(3). Here the taxpayer's former return preparer never advised making the election, so the return was filed without the required statement. The taxpayer asked for late-election relief under § 301.9100-3. The IRS concluded the taxpayer acted reasonably and in good faith and that relief would not prejudice the government, and granted 120 days from the date of the letter to make the election on an amended return. The IRS expressed no opinion on whether the taxpayer actually qualifies under section 469(c)(7)(B) or materially participates.

Ruling snapshot

• Question: May a real estate investor get extra time under § 301.9100-3 to make the section 469(c)(7) election to group 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: 202223011 Third Party Communication: None
Release Date: 6/10/2022 Date of Communication: Not Applicable
Index Numbers: 469.14-00, 9100.00-00
Person To Contact:
------------------- ------------, ID No. -----------------
------------------------------- Telephone Number:
---------------------------- -------------------
-------------------------------- Refer Reply To:
CC:PSI:03
PLR-119282-21
Date:
March 14, 2022

Legend

A = ----------------------------------------------------------------------------------------------------
------------------------

Year = -------

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

    This letter responds to a letter dated September 13, 2021, and subsequent

correspondence, submitted on behalf of A by his authorized representative requesting a
ruling under § 301.9100-3 of the Procedure and Administration Regulations to file an
election under § 469(c)(7) of the Internal Revenue Code (Code) to treat all interests in
rental real estate as a single rental real estate activity.

                                                Facts

    According to the information submitted, in the Year taxable year A was engaged

in a real property business as defined under § 469(c)(7)(C) 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, A represents that his former tax return preparer did
not advise A about the election under § 469(c)(7). As a result, A filed his Year Federal
income tax return without the required statement under § 1.469-9(g)(3) of the Income
Tax Regulations to make an election under § 469(c)(7).

                                        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
PLR-119282-21 2

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 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 the

Commissioner will use to determine whether to grant an extension of time to make an
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.

   Section 301.9100-3(a) provides that requests for relief under § 301.9100-3 will be

granted when the taxpayer provides the evidence (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer
acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.

                                     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 for the Year taxable 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 Year. A copy of this letter should be attached to the election.

   Except as specifically set forth above, we express or imply no opinion concerning

the federal tax consequences of the facts described above under any other provision of
the Code. Specifically, we express or imply no opinion concerning whether A satisfies
PLR-119282-21 3

the requirements under § 469(c)(7)(B) or whether A materially participates in any
activity.

   The ruling contained in this letter is 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 ruling request, it is subject to verification on examination.

   This ruling is directed only to the taxpayer who requested 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 to your authorized representative.

                                  Sincerely,

                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)


                                            /S/
                              By:_________________________
                                 Mary Beth Carchia
                                 Senior Technician Reviewer, Branch 3
                                 Office of Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosure:
Copy of letter for § 6110 purposes

cc: