Couple gets more time to elect corporate tax rates on foreign-corporation income after their accountant missed it

Plain-English summary

When a U.S. individual owns a share of a controlled foreign corporation, they can be taxed currently on that foreign income, and a § 962 election lets the individual instead be taxed at corporate rates (and claim a credit for foreign taxes). Here a married couple had this kind of foreign income through a partnership and intended to make the § 962 election, but their accounting firm forgot to file the required election statement with the return. The couple asked the IRS for an extension of time under Treas. Reg. § 301.9100-3. Because they reasonably relied on a qualified tax professional who failed to make the election, and none of the disqualifying conditions (hindsight, closed years, lower aggregate tax) were present, the IRS found they acted reasonably and in good faith and that relief would not prejudice the government. The IRS granted 60 days from the date of the letter to make the election. This is the standard cure when a preparer's oversight, not the taxpayer's choice, causes a missed election.

Ruling snapshot

• Question: May individuals get an extension of time to make a § 962 election their accountant failed to file?
• Outcome: Approved (60-day extension granted)
• Key authorities: IRC §§ 962, 951(a); Treas. Reg. §§ 1.962-2(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                 Department of the Treasury
                                                          Washington, DC 20224

 Number: 202238006                                        Third Party Communication: None
 Release Date: 9/23/2022                                  Date of Communication: Not Applicable
 Index Number: 962.00-00, 9100.00-00
                                                          Person To Contact:
 -----------------------------------------                ------------------, ID No. -----------------
 -----------------------------                            Telephone Number:
 --------------------------                               --------------------
                                                          Refer Reply To:
 In Re:                                                   CC:INTL:B02
                                                          PLR-102845-22
                                                          Date:
                                                          June 30, 2022

                 TY:

Legend


 Taxpayers       = -------------------------------------------------------------------------------------
                   ------------
 Partnership     = ------------------------------------------------------------------------
 Accounting Firm = ---------------------------------------
 Year 1          = -------


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

This responds to a letter dated January 31, 2022, submitted by Accounting Firm
requesting an extension of time under Treas. Reg. § 301.9100-3 to make an election
under section 962 of the Internal Revenue Code to be subject to tax at corporate rates
effective for Year 1.

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 an appropriate party. While this office has not verified any of the material submitted
in support of the request for ruling, it is subject to verification on examination.


FACTS

Taxpayers, husband and wife, filed their U.S. federal income tax return jointly. Husband
was a partner in Partnership, which owned controlled foreign corporations. In Year 1,
Taxpayers included amounts in their gross income under section 951(a) due to
husband's ownership interest in Partnership. Taxpayers relied on Accounting Firm to
prepare their tax return for Year 1 and to make the election under section 962, which
included filing the election statement as required under Treas. Reg. § 1.962-2(b). Due
PLR-102845-22                                 2

to an oversight, Accounting Firm did not file the election statement with the Taxpayers'
return for the Year 1 taxable year. Therefore, Taxpayers did not make a section 962
election as prescribed by Treas. Reg. § 1.962-2(b) for that year.

The Taxpayers have represented that:

    1. Taxpayers are not seeking to alter a return position for which an accuracy-related
      penalty has been or could be imposed under section 6662 at the time of
      Taxpayers' request for relief and, therefore, there is no new return position that
      requires or permits a regulatory election for which relief is requested.

    2. It is not the case that Taxpayers were informed in all material respects of the
      election and related tax consequences, but chose not to file the election.

    3. Taxpayers did not use hindsight in requesting relief, and no specific facts have
      changed since the due date for making the election that make the election more
      advantageous to Taxpayers than if the election had been timely made.

    4. Granting relief would not result in a lower tax liability in the aggregate for all
      taxable years affected by the election than the taxpayers would have had if the
      election had been timely made.

    5. The taxable year in which the regulatory election should have been made and
      any taxable years that would have been affected by the election had it been
      timely made are not closed by the period of limitations on assessment.


LAW AND ANALYSIS

Section 962(a) provides that, under regulations prescribed by the Secretary, an
individual United States shareholder of a controlled foreign corporation may elect to be
subject to tax at corporate rates on amounts included in their gross income under
section 951(a) and to have the benefits of a credit for certain foreign income taxes paid
with respect to such amounts.

Section 962(b) provides that such election shall be made by a United States
shareholder at such time and in such manner as the Secretary shall prescribe by
regulations.

Treas. Reg. § 1.962-2(b) provides that a United States shareholder shall make an
election under section 962 by filing a statement to such effect with their return for the
taxable year with respect to which the election is made.

Treas. Reg. § 301.9100-1(c) provides that the Commissioner has discretion to grant a
taxpayer a reasonable extension of time, under the rules set forth in Treas. Reg. §
PLR-102845-22                                 3

301.9100-3, to make a regulatory election under all subtitles of the Internal Revenue
Code, except subtitles E, G, H, and I.

Treas. Reg. § 301.9100-1(b) defines a regulatory election as an election whose due
date is prescribed by a regulation, a revenue ruling, revenue procedure, notice, or
announcement.

Treas. Reg. § 301.9100-3(a) provides that requests for relief will be granted when the
taxpayer provides the evidence (including affidavits described in Treas. Reg. §
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.

Treas. Reg. § 301.9100-3(b)(1) provides that, except as provided in paragraph (b)(3)(i)
through (iii), a taxpayer is deemed to have acted reasonably and in good faith if the
taxpayer—

i.     requests relief under this section before the failure to make the regulatory
       election is discovered by the Internal Revenue Service;
ii.    failed to make the election because of intervening events beyond the taxpayer's
       control;
iii.   failed to make the election because, after exercising reasonable diligence (taking
       into account the taxpayer's experience and complexity of the return at issue), the
       taxpayer was unaware of the necessity for the election;
iv.    reasonably relied on the written advice of the IRS; or
v.     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.

Treas. Reg. § 301.9100-3(b)(3) provides that a taxpayer is deemed to have not acted
reasonably and in good faith if the taxpayer—

i.     seeks to alter a return position for which an accuracy-related penalty has been or
       could be imposed under section 6662 at the time the taxpayer requests relief and
       the new position requires or permits a regulatory election for which relief is
       requested;
ii.    was informed in all material respects of the required election and related tax
       consequences, but those not to file the election; or
iii.   uses hindsight in requested relief. If specific facts have changed since the due
       date for making the election that make the election advantageous to the
       taxpayer, the IRS will not ordinarily grant relief. In such a case, the IRS will grant
       relief only when the taxpayer provides strong proof that the taxpayer's decision to
       seek relief did not involve hindsight.
PLR-102845-22                                 4

Treas. Reg. § 301.9100-3(c)(1)(i) provides, in relevant part, that the interests of the
Government are prejudiced if granting relief would result in a 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 (taking into account the
time value of money).

Treas. Reg. § 301.9100-3(c)(1)(ii) provides that 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 under section
6501(a) before the taxpayer's receipt of a ruling granting relief.

In this case, Treas. Reg. § 1.962-2(b) fixes the time to make the election under section
962, which makes the election a regulatory election. Therefore, the Commissioner has
discretionary authority under Treas. Reg. § 301.9100-1(c) to grant Taxpayers an
extension of time provided that Taxpayers satisfy the standards set forth under Treas.
Reg. § 301.9100-3(a).

Under Treas. Reg. § 301.9100-3(b)(1)(v), Taxpayers acted reasonably and in good faith
because they reasonably relied on Accounting Firm, which was a qualified tax
professional employed by Taxpayers, and Accounting Firm failed to make, or advise
Taxpayers to make, the section 962 election.

Taxpayers have represented that none of the conditions in Treas. Reg. § 301.9100-
3(b)(3)(i)-(iii) were present such that the Taxpayers would be deemed not to have acted
reasonably or in good faith.

Taxpayers have represented that granting relief would not result in Taxpayers having a
lower tax liability in the aggregate for all taxable years affected by the election than
Taxpayers would have had if the election had been timely made. Further, Taxpayers
have represented that the taxable year in which the regulatory election would have been
made and any taxable years that would have been affected had it been timely made,
are not closed by the period of limitations on assessment. Accordingly, the interests of
the Government will not be prejudiced by the granting of relief.


CONCLUSIONS

Based solely on the information and representations set forth above, we conclude that
Taxpayers satisfy Treas. Reg. § 301.9100-3(a). Accordingly, Taxpayers are granted an
extension of time until 60 days from the date of this ruling letter to make the election
under section 962 for the Year 1 taxable year.

Taxpayers should attach a copy of this letter ruling to their federal income tax return for
the relevant year.
PLR-102845-22                                    5


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

Pursuant to a power of attorney on file in this office, a copy of this ruling letter is being
furnished to your authorized representative.



                                    Sincerely,

                                    /s/ Kristine A. Crabtree

                                    Kristine A. Crabtree
                                    Senior Technical Reviewer, Branch 2
                                    (International)




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