IRS grants an estate a 120-day extension to make the section 663(b) "65-day rule" election

Plain-English summary

An estate made distributions to its beneficiaries within the first 65 days of a new tax year. IRC § 663(b) (the "65-day rule") lets an estate or trust elect to treat such early-year distributions as if they were made on the last day of the prior year, which can shift income out to the beneficiaries for that earlier year. But the election must be made on a timely filed return, and here the estate's administrator missed it. The estate asked the IRS for relief under the § 9100 regulations, which allow a late regulatory election when the taxpayer acted reasonably and in good faith and granting relief will not prejudice the government. The IRS found those standards met and granted a 120-day extension to make the § 663(b) election by filing an amended return for the year. The letter cautions that granting more time to make the election is not a ruling that the estate actually qualifies to make it.

Ruling snapshot

• Question: Should the estate get a § 9100 extension of time to make a late § 663(b) election?
• Outcome: Approved (120-day extension granted)
• Key authorities: IRC § 663(b); Treas. Reg. § 1.663(b)-2; Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 202227003                                            Third Party Communication: None
Release Date: 7/8/2022                                       Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.12-00,
663.04-00                                                    Person To Contact:
                                                             -------------------, ID No. ------------
----------------------------------------------               Telephone Number:
--------------------------------------                       --------------------
-------------------------------                              Refer Reply To:
-------------------------------------                        CC:PSI:03
----------------------------------                           PLR-121274-21
---------------------------                                  Date:
                                                             April 12, 2022
----------------------------------------------------------


Legend

Estate            =        --------------------------------------
                           ------------------

Date              =        -----------------------

x                 =        -------------

Year              =         -----------------------------------------------------------------
                           ------------------------------------


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

        This letter responds to a letter dated September 30, 2021, submitted on behalf of
Estate, requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations for Estate to file an election under § 663(b) to treat
distributions as paid or credited on the last day of the preceding taxable year.

                                                     FACTS

        Based on the information submitted, Estate filed its federal income tax return on
a fiscal year basis. On Date, the administrator of Estate made distributions to
beneficiaries within the first 65 days following the close of Year totaling $x. However,
the administrator of Estate failed to timely file an election under § 663(b), electing to
treat the distributions as paid or credited on the last day of Year.

                                   LAW AND ANALYSIS

     Section 663 provides special rules applicable for §§ 661 and 662 of the Internal
Revenue Code.

       Section 663(b)(1) provides, in general, that if within the first 65 days of any
taxable year of an estate or a trust, an amount is properly paid or credited, such amount
shall be considered paid or credited on the last day of the preceding taxable year.

       Section 663(b)(2) provides that § 663(b)(1) shall apply with respect to any
taxable year of an estate or a trust only if the executor of such estate or the fiduciary of
such trust (as the case may be) elects, in such manner and at such time as the
Secretary prescribes by regulations, to have § 663(b)(1) apply for such taxable year.

        Section 1.663(b)-2(a)(1) of the Income Tax Regulations provides that if a trust
return is required to be filed for the taxable year of the trust for which the election is
made, the election shall be made in the appropriate place on such return. The election
under § 1.663(b)-2(a)(1) shall be made not later than the time prescribed by law for
filing such return (including extensions thereof). Such election shall become irrevocable
after the last day prescribed for making it.

       Section 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.

        Section 301.9100-3(a) provides that requests for relief subject to § 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 facts submitted and representations made, we conclude that
Estate has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result,
Estate is granted an extension of time of 120 days from the date of this letter to file an
election under § 663(b). The election should be filed with the appropriate service center
by filing an income tax return for Year, amended to include the election. A copy of this
letter should be attached to the amended return.

       Except as specifically set forth above, we express or imply no opinion concerning
the tax consequences of the facts of this case under any other provision of the Code
and the regulations thereunder. In addition, § 301.9100-1(a) provides that the granting
of an extension of time for making an election is not a determination that the taxpayer is
otherwise eligible to make the election.

       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 request for rulings, it is subject to verification on examination.

      This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.


                                                 Sincerely,

                                                 Associate Chief Counsel
                                                 (Passthroughs and Special Industries)


                                                 /s/ Margaret Burow
                                             By: ______________________________
                                                 Margaret Burow
                                                 Senior Counsel, Branch 3
                                                 Office of Associate Chief Counsel
                                                 (Passthroughs & Special Industries)


Enclosure
      Copy for § 6110 purposes



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