Missed corporate extension did not defeat four regulatory elections

Plain-English summary

A corporate group doubled its federal and state filing workload after entering the mortgage-banking business, lost a recently hired tax director shortly before extension deadlines, and was transitioning to tax software that could not yet e-file Form 7004. Although the tax department prepared the extension and made timely extension payments, it mistakenly failed to mail Form 7004. Its eventual return included statements electing the tangible-property de minimis safe harbor, capitalization of repair costs, and no bonus depreciation for specified property classes, but omitted the mortgage-servicing-rights safe-harbor statement. The IRS found that the taxpayer acted reasonably and in good faith. It deemed the three attached election statements timely and granted 60 days to file the Rev. Proc. 91-50 mortgage-servicing election. The ruling does not determine substantive eligibility for any election.

Ruling snapshot

• Question: Could the taxpayer preserve four regulatory elections after failing to mail its corporate extension and omitting one election statement?
• Outcome: Approved; three elections are deemed timely and the mortgage-servicing election may be filed within 60 days
• Key authorities: IRC § 168(k)(7); Treas. Reg. §§ 1.263(a)-1(f), 1.263(a)-3(n), 301.9100-1, 301.9100-3; Rev. Proc. 91-50

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202510006 Third Party Communication: None
Release Date: 3/7/2025 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
------------------------------------------------------------ -----------------------, ID No. -----------------
---------------- Telephone Number:
------------------------------------------------------ --------------------
Refer Reply To:
CC:ITA:B02
Attn: ----------------------------------------------------- PLR-111298-24
Date:
December 04, 2024

LEGEND
Taxpayer = --------------------------------------------
City 1 = -----------
State1 = ----------
Business = -------------------------------------------------------------------
-----------------------
Date1 = --------------------------
Date2 = ------------------
Date3 = ------------------------
Date4 -------------------
Entity1 = ----------------------------------------------------------
Entity2 = ------------------------------------
Year1 = -------
Year2 = -------
$x = ------------------
Accounting Firm = ----------------------
Number1 = ---
Number2 = ---

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

This letter responds to a letter ruling request dated Date4, submitted on behalf of
Taxpayer. Taxpayer requests an extension of time pursuant to §§ 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations to make late elections
concerning: (1) the mortgage servicing rights safe harbor under Rev. Proc. 91-50, 1991-
2 C.B. 778, (2) the de minimis safe harbor election under § 1.263(a)-1(f) of the Income
Tax Regulations, (3) the election to capitalize repair and maintenance costs under §
1.263(a)-3(n), and (4) the election under § 168(k)(7) of the Internal Revenue Code not
to deduct the additional first year depreciation for 3-, 5-, 7-, and 15-year property that
are qualified property under § 168(k) and placed in service by Taxpayer during the
taxable year ended Date1 (the “Elections”).
PLR-111298-24 2

                                      FACTS

Taxpayer is a holding company, headquartered in City1, State1, which engages in the
trade or business of Business through its subsidiaries. Taxpayer and its subsidiaries
operate in several states throughout the country. Taxpayer files a consolidated Form
1120 and is a calendar year taxpayer.

During Taxpayer’s taxable year ending Date1, Taxpayer acquired a new entity through
a taxable asset acquisition, Entity1, a single-member limited liability company wholly
owned by Taxpayer’s subsidiary, Entity2. As a result of the acquisition, Taxpayer’s tax
return filings doubled from Number1 federal and state tax returns to Number2 returns.
Taxpayer’s acquisition of Entity1 constituted its entry into a new business line –
mortgage banking. In the course of its new trade or business, Taxpayer acquires
mortgage loans and then sells its mortgage loans to third party investors while retaining
mortgage servicing rights for the loans.

Taxpayer represents that to manage the additional filing complexity following its
acquisition of Entity1, Taxpayer employed Entity1’s former tax director. However, the
former tax director resigned less than a month before Taxpayer’s extensions for the
Year1 tax year were due.

At the end of the Year1 tax year, Taxpayer was in the process of transitioning tax filing
software. However, certain functions of the filing software were not fully operational until
later in the Year2 tax year, including the ability to electronically file extensions on Form
7004. As a result, Taxpayer had to submit Form 7004 by mail for the Year1 tax year,
although it historically filed Form 7004 electronically.

Taxpayer represents that its tax department prepared, reviewed, and printed the Form
7004 extension for its Form 1120 for Year1. Taxpayer represents that its federal income
tax returns were prepared under the genuine belief that its tax associate had mailed all
required extensions to the Internal Revenue Service (the “Service”) via the United
States Postal Service. However, Taxpayer inadvertently failed to mail its Form 7004.

Consistent with its preparation of the Form 7004, Taxpayer remitted two extension
payments through the Electronic Federal Tax Payment System for Year1 prior to the
Date2 due date to reflect the amount of tax due that was reported on its Form 7004.

Taxpayer included the statements regarding the de minimis safe harbor election, the
election to capitalize repair and maintenance costs, and the election out of special
depreciation allowance in its Form 1120 package, but inadvertently omitted the
mortgage servicing rights safe harbor election statement under Rev. Proc. 91-50.
Consistent with Taxpayer’s belief that the Form 1120 had been filed timely, all related
calculations used to report each impacted line item of the Year1 return were completed
as if the Elections that are the subject of this request, including the mortgage servicing
rights safe harbor election, were all timely made and filed.
PLR-111298-24 3

On its filed Form 1120 for the Year1 tax year, Taxpayer claimed a refund of $x.
Taxpayer states that it first discovered that its Form 7004 and the election statement for
the mortgage servicing rights safe harbor election may not have been filed when the
Internal Revenue Service approached Taxpayer on Date3 regarding Taxpayer’s refund
release for the Year1 Tax Year.

Taxpayer engaged Accounting Firm to review its return before filing and to sign the
return as the paid preparer. As part of Accounting Firm’s review of Taxpayer’s return, it
reviewed the Elections made for the taxable year and provided comments and revisions
before filing. Taxpayer represents that it did not intentionally omit the Elections after
being informed in all material respects regarding the Elections and related tax
consequences. Taxpayer further represents that no specific facts have changed since
the due date for filing the Elections that make them more advantageous to Taxpayer
now than they would have been had they been timely filed.

Taxpayer represents that an extension of time to make the Elections will result in
Taxpayer maintaining the same aggregate tax liability as if the election were property
made, and that because its Elections relate to tax year ended Date1, the affected tax
year is not closed by the period of limitations on assessment under §6501(a).

As of the date of the private letter ruling request, Taxpayer is not under examination for
the taxable year ended Date1 or for any future tax years.

                             LAW AND ANALYSIS

I. Procedural Rules for Granting an Extension of Time for a Regulatory
Election

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

Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-
3 to make certain regulatory elections. Section 301.9100-1(b) defines the term
"regulatory election" as an election whose due date is prescribed by a regulation
published in the Federal Register, or a revenue ruling, procedure, notice or
announcement published in the Internal Revenue Bulletin.

Section 301.9100-3(a) provides that requests for relief under § 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.
PLR-111298-24 4

Section 301.9100-3(b)(1) states that a taxpayer is deemed to have acted reasonably
and in good faith if the taxpayer: (i) requests relief before the failure to make the
regulatory election is discovered by the 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 the 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 Service, 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.

Section 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 § 6662 at the time the
taxpayer requests relief (taking into account any qualified amended return filed within
the meaning of § 6664-2(c)(3)) 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 chose not to file the election, or (iii)
uses hindsight in requesting relief. If specific facts have changed since the original
deadline that make the election advantageous to a taxpayer, the Service will not
ordinarily grant relief.

Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable
extension of time to make a regulatory election only when the interests of the
Government will not be prejudiced by the granting of relief. Section 301.9100-3(c)(1)(i)
provides, in part, 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 (taking into account the time value of money). Section 301.9100-
3(c)(1)(ii) provides, in part, 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 § 6501(a) before the
taxpayer’s receipt of a ruling granting relief.

II. Rules for Automatic Extension of Time for Filing Corporate Return

Section 1.6081-3(a) provides that, in general, a corporation or an affiliated group of
corporations filing a consolidated return will be allowed an automatic 6-month extension
of time to file its income tax return after the date prescribed for filing the return if the
following requirements are met: (1) the taxpayer submits an application on Form 7004,
“Application for Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns”; (2) Form 7004 is filed on or before the date prescribed
for the filing of the return of the corporation (or the consolidated return of the affiliated
group of corporations) with the Service; (3) the corporation (or affiliated group of
PLR-111298-24 5

corporations filing a consolidated return) must remit the amount of the properly
estimated unpaid tax liability on or before the date prescribed for payment; (4) the
application must include a statement listing the name and address of each member of
the affiliated group if the affiliated group will file a consolidated return.

III. Rev. Proc. 91-50 Mortgage Servicing Rights Safe Harbor Election

Section 1286(d)(1) defines the term “bond” to include a note, certificate or other
evidence of indebtedness. Section 1286(d)(5) defines the term “coupon” to include any
right to receive interest on a bond (whether or not evidenced by a coupon). Section
1286(d)(2) defines the term “stripped bond” as a bond issued with interest coupons
where there is a separation in ownership between the bond and any coupon that has
not yet become payable. Section 1286(d)(3) defines a “stripped coupon” as any coupon
resulting from a stripped bond.

In Rev. Rul. 91-46, 1991-2 C.B. 358, a taxpayer sold mortgage loans and at the same
time entered into a contract to service the mortgages for amounts received from interest
payments collected on the mortgages. The ruling holds that the mortgages are “stripped
bonds” under section 1286 if the contract entitles the taxpayer to receive amounts that
exceed reasonable compensation for the services to be performed under the contract.
The ruling also holds that the taxpayer's rights to receive amounts under the contract
are “stripped coupons” under section 1286 to the extent that they are rights to receive
mortgage interest other than as reasonable compensation for the services to be
performed.

Rev. Proc. 91-50 provides a safe harbor that taxpayers may elect to use in applying
section 1286 and Rev. Rul. 91-46 to certain mortgage servicing contracts. When
elected, this safe harbor provides the rates a taxpayer may use as reasonable
compensation for servicing specific types of mortgages. To elect the safe harbor under
Rev. Proc. 91-50, a taxpayer must attach a statement to its timely filed federal income
tax return for the first taxable year for which the safe harbor is elected.

IV. Section 1.263(a)-1(f) De Minimis Safe Harbor Election

Section 1.263(a)-1(f) provides that if a taxpayer elects to apply the de minimis safe
harbor, then the taxpayer may not capitalize under §§ 1.263(a)-2(d)(1) or 1.263(a)-3(d)
any amount paid in the taxable year for the acquisition or production of a unit of tangible
property nor treat as materials or supply under § 1.162-3(a) any amount paid in the
taxable year for tangible property if the amount meets certain requirements specified in
the regulations. Section 1.263(a)-1(f)(3)(iv) provides that an amount paid for property to
which a taxpayer properly applies the de minimis safe harbor may be deducted under
§ 1.162-1 in the taxable year the amount is paid provided the amount otherwise
constitutes an ordinary and necessary expense incurred in carrying on a trade or
business.
PLR-111298-24 6

A taxpayer makes the de minimis safe harbor election under § 1.263(a)-1(f) by attaching
a statement to the taxpayer’s timely filed original Federal tax return (including
extensions) for the taxable year in which the amounts are paid. The statement must be
titled “Section 1.263(a)-1(f) de minimis safe harbor election” and include the taxpayer’s
name, address, taxpayer identification number, and a statement that the taxpayer is
making the de minimis safe harbor election under § 1.263(a)-1(f). In the case of a
consolidated group filing a consolidated income tax return, the election is made for each
member of the consolidated group by the common parent, and the statement must also
include the names and taxpayer identification numbers of each member for which the
election is made.

V. Section 1.263(a)-3(n) Election to Capitalize Repair and Maintenance Costs

Section 1.263(a)-3(n) provides that a taxpayer may elect to treat amounts paid during
the taxable year for repair and maintenance (as defined under § 1.162–4) to tangible
property as amounts paid to improve that property and as an asset subject to the
allowance for depreciation if the taxpayer incurs these amounts in carrying on the
taxpayer's trade or business and if the taxpayer treats these amounts as capital
expenditures on its books and records regularly used in computing income. A taxpayer
that makes this election in a taxable year must apply section 1.263(a)-3(n) to all
amounts paid for repair and maintenance to tangible property that it treats as capital
expenditures on its books and records in that taxable year. Any amounts for which this
election is made shall not be treated as amounts paid for repair or maintenance under
§1.162-4.

Section 1.263(a)-3(n)(2) provides, in part, that a taxpayer makes this election by
attaching a statement to the taxpayer's timely filed original Federal tax return (including
extensions) for the taxable year in which the taxpayer pays amounts described under
§ 1.263(a)-3(n)(1). The statement must be titled " Section 1.263(a)-3(n) Election" and
include the taxpayer's name, address, taxpayer identification number, and a statement
that the taxpayer is making the election to capitalize repair and maintenance costs
under § 1.263(a)-3(n). In the case of a consolidated group filing a consolidated income
tax return, the election is made for each member of the consolidated group by the
common parent, and the statement must also include the names and taxpayer
identification numbers of each member for which the election is made.

VI. Section 168(k)(7) Election to not Deduct Additional First Year Depreciation

§ 168(k)(1) and (k)(6) allows, in the taxable year that qualified property is placed in
service, a 100-percent additional first year depreciation deduction for qualified property
acquired by the taxpayer after September 27, 2017, and placed in service by the
taxpayer after September 27, 2017, and before January 1, 2023. Section 168(k)(7)
allows a taxpayer to elect not to deduct the additional first year depreciation for any
class of property placed in service by the taxpayer during the taxable year.
PLR-111298-24 7

Section 1.168(k)-2(f)(1)(i) provides that the section 168(k)(7) election applies to all
qualified property that is in the same class of property and placed in service for the
same taxable year. Section 1.168(k)-2(f)(1)(ii) defines “class of property” for purposes of
the section 168(k)(7) election as meaning each class of property described in section
1.168(k)-2(f)(1)(ii)(A)-(G).

Section 1.168-(k)-2(f)(1)(iii)(A) provides that the § 168(k)(7) election not to deduct
additional first year depreciation must be made by the due date, including extensions, of
the Federal tax return for the taxable year in which the qualified property is placed in
service by the taxpayer. Section 1.168-(k)-2(f)(1)(iii)(B) provides that the §168(k)(7)
election not to deduct additional first year depreciation must be made in the manner
prescribed on Form 4562, “Depreciation and Amortization,” and its instructions. The
Instructions to Form 4562 for the 2021 Taxable Year provided that the election not to
deduct the additional first year depreciation is made by attaching a statement to the
taxpayer’s timely filed tax return (including extensions) indicating the class of property
for which the taxpayer is making the election and that, for such class, the taxpayer is not
claiming any special depreciation allowance.

                                  CONCLUSION

Based solely on the facts submitted and the representations made, we conclude that
Taxpayer has acted reasonably and in good faith and granting relief will not prejudice
the interests of the government. Accordingly, Taxpayer has satisfied the requirements
for the granting of relief, and Taxpayer is granted an extension of time to make the
elections under Rev. Proc. 91-50, § 1.263(a)-1(f), § 1.263(a)-3(n), and
§ 168(k)(7) for the taxable year ended Date1.

The ruling contained in this letter is based on facts and representations submitted by
Taxpayer and accompanied by a penalty of perjury statement executed by an
appropriate party as well as the supporting affidavits of Taxpayer’s senior tax manager
and Accounting Firm’s tax managing director. This office has not verified any of the
material submitted in support of the request for a ruling. However, as part of an
examination process, the Service may verify the information, representations, and other
data submitted. If any of the information or representations provided are subsequently
determined to be inaccurate and/or incomplete, this ruling and its conclusions are void.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences arising from the facts described above under any other provision of
the Code or regulations. In addition, no opinion is expressed regarding Taxpayer’s
eligibility to make the Elections subject to this ruling.

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.
PLR-111298-24 8

As a result of the relief, the previously filed elections under § 1.263(a)-1(f), § 1.263(a)-
3(n), and § 168(k)(7) are deemed timely filed. Taxpayer is granted an extension of 60
days from the date of this ruling to file the election for the mortgage servicing rights safe
harbor under Rev. Proc. 91-50 for its taxable year ended Date1. A copy of this ruling
should be attached to Taxpayer's federal tax returns for the tax years affected.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

                                                         Sincerely,


                                                         _______________________________
                                                         Ronald J. Goldstein
                                                         Senior Technician Reviewer, Branch 2
                                                         Office of Associate Chief Counsel
                                                         (Income Tax and Accounting)

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