Tax-exempt controlled entity received 60 days to file a depreciation election

Plain-English summary

A corporation wholly owned by a tax-exempt entity intended to elect not to be treated as a tax-exempt controlled entity for depreciation purposes. Its tax advisor prepared the return as if the election had been made but inadvertently failed to attach the required election statement. Later returns continued to assume that the election was valid, and the error surfaced when a partnership member requested supporting documentation. The IRS found that the corporation intended to elect from the outset, relied on its advisor, promptly sought relief, and was not using hindsight. It granted 60 days to file the election statement and required copies to be attached to relevant returns.

Ruling snapshot

• Question: May the corporation receive extra time to make the section 168(h)(6)(F)(ii) election?
• Outcome: Approved
• Key authorities: IRC §§ 167 and 168; Treas. Reg. §§ 301.9100-1, 301.9100-3, and 301.9100-7T

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202526008
[Third Party Communication:
Release Date: 6/27/2025
Date of Communication: Month DD, YYYY]
Index Number: 168.29-02, 9100.04-00
Person To Contact:
------------------------------
----------------------, ID No. -----------------
------------------------
Telephone Number:
------------------------------------------ ---------------------
---------------------------------
Refer Reply To:
CC:ITA:B07
PLR-120142-24
Date:
April 02, 2025

In re: --------------------------------------------
----------------------------------
Request for Extension of Time to Make the Election Not to be Treated as a Tax- Exempt Controlled Entity

LEGEND

Taxpayer = ---------------------------------------------------------------------------------------
-------------------------
Tax-exempt Entity = ---------------------------------------------------------------------------------------
-------------------------
Partnership = ------------------------------------------------------------- Advisor = ----------------------------------
Year 1 = ------------------------------------------------------
Date 1 = ---------------------------
State Z = ------------------------
X = ---------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------

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

This letter ruling responds to Taxpayer’s letter dated Date 1, and subsequent correspondence. Taxpayer requests an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to make the election not to be treated as a tax-exempt controlled entity under § 168(h)(6)(F)(ii) of the Internal Revenue Code (Code) for Taxpayer’s Year 1.

This letter ruling is being issued electronically in accordance with section 7.02(5) of Rev. Proc. 2024-1, 2024-1 I.R.B. 1.
PLR-120142-24
2

FACTS

Taxpayer represents the facts are as follows:

Taxpayer is a limited liability company, treated as a corporation for federal income tax purposes, and formed under the laws of State Z. Taxpayer uses an accrual method as its overall accounting method and the calendar year as its annual accounting period. Taxpayer is engaged in the business of X.

Tax-exempt Entity wholly owns Taxpayer. Taxpayer represents that it is therefore a tax-exempt controlled entity within the meaning of § 168(h)(6)(F)(iii).

Taxpayer is the administrative general partner of Partnership. The operating agreement of Partnership provides that Taxpayer will make an election under § 168(h)(6)(F)(ii) and file a Form 8832 to elect to be classified as an association taxable as a corporation.

Taxpayer engaged Advisor to prepare its Year 1 federal income tax return and Advisor was aware that Taxpayer intended to make an election under § 168(h)(6)(F)(ii) for Year 1. Advisor prepared and timely filed Taxpayer’s Year 1 return as if a § 168(h)(6)(F)(ii) election was duly and properly made.

After Taxpayer’s Year 1 federal tax return was filed, a member of Partnership requested supporting documentation regarding Taxpayer’s election under § 168(h)(6)(F)(ii) on the Year 1 return. In preparing the response, Advisor discovered that Advisor inadvertently failed to file the § 168(h)(6)(F)(ii) election by the due date (including extensions) for Taxpayer’s federal income tax return for Year 1. Further, Advisor informed Taxpayer that Taxpayer’s federal income tax returns for taxable years subsequent to Year 1 were prepared presuming that a valid § 168(h)(6)(F)(ii) election was filed for Year 1.

Advisor communicated its error to Taxpayer. As a result, Taxpayer submitted its letter dated Date 1, requesting this letter ruling.

Finally, Taxpayer represents that, in requesting this letter ruling, it acted reasonably and in good faith because Taxpayer reasonably relied on the expertise of Advisor, and that granting an extension of time to make the election under § 168(h)(6)(F)(ii) will not prejudice the interests of the Government.

RULING REQUESTED

Taxpayer requests that the Internal Revenue Service grant it an extension of time under §§ 301.9100-1 and 301.9100-3 to file the election under § 168(h)(6)(F)(ii).
PLR-120142-24
3

LAW

Section 167(a) generally provides for a depreciation deduction for property used in a trade or business. The depreciation deduction provided by § 167(a) for tangible property placed in service after 1986 is generally determined under § 168. Under §168(g), the alternative depreciation system must be used for any tax-exempt use property as defined in § 168(h).

Section 168(h)(6)(A) provides that, for purposes of § 168(h), if any property not tax-exempt property is owned by a partnership having both a tax-exempt entity and non- tax-exempt entity as partners and any allocation to the tax-exempt entity is not a qualified allocation, then an amount equal to such tax-exempt entity’s proportionate share of such property is treated as tax-exempt use property.

Section 168(h)(6)(F)(i) provides generally that any tax-exempt controlled entity is treated as a tax-exempt entity for purposes of § 168(h)(5) and (6). Under § 168(h)(6)(F)(iii)(I), a corporation (without regard to that subparagraph and § 168(h)(2)(E)) constitutes a “tax-exempt controlled entity” if 50-percent or more (in value) of the corporation’s stock is held by one or more tax-exempt entities (other than a foreign person or entity).

Under § 168(h)(6)(F)(ii), a tax-exempt controlled entity can elect not to be treated as a tax-exempt entity. Once made, the election is irrevocable and will bind all tax- exempt entities holding an interest in the tax-exempt controlled entity.

Under § 301.9100-7T(a)(2)(i), a § 168(h)(6)(F)(ii) election must be made by the due date of the tax return for the first taxable year for which the election is to be effective. Section 301.9100-7T(a)(3)(i) provides that the § 168(h)(6)(F)(ii) election must be made by attaching a statement to the tax return for the taxable year in which the election is to be effective.

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

Section 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 a regulatory 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(b) defines a regulatory election as one whose due date is prescribed by regulations in the Federal Register, a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin. Because the due
PLR-120142-24
4

date of the election is prescribed by § 301.9100-7T(a)(2)(i), the requested
§ 168(h)(6)(F)(ii) election is a regulatory election.

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

ANALYSIS

Taxpayer’s request must be analyzed under the requirements of § 301.9100-3 because the automatic extensions provided in § 301.9100-2 are not applicable. The facts as represented and submitted by Taxpayer indicate Taxpayer is eligible to make the § 168(h)(6)(F)(ii) election and intended at the outset to make the § 168(h)(6)(F)(ii) election, that its failure to make the election on a timely-filed return was inadvertent, and that Taxpayer is not using hindsight in requesting relief. Upon discovering its failure, Taxpayer promptly sought relief. Moreover, Taxpayer requested this relief before failure to make the election was discovered by the Service. Taxpayer acted reasonably and in good faith, and the interests of the Government will not be prejudiced by the granting of relief under § 301.9100-3.

CONCLUSION

Based solely on the facts as represented and the applicable law, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Taxpayer is granted an extension of 60 calendar days from the date of this letter ruling to file the election statement with the appropriate service center containing the information required by § 301.9100-7T(a)(3) for the election to be effective in Year 1.

Taxpayer must attach a copy of this letter ruling to the election statement.
Further, this letter ruling should be attached to all subsequent returns (and amended returns) for all taxable years to which this letter ruling is relevant. If Taxpayer files its amended return electronically, it may satisfy this requirement by attaching a statement to its amended return that provides the date and control number of this letter ruling. Pursuant to § 301.9100-7T(a)(3)(ii), a copy of this letter ruling and the § 168(h)(6)(F)(ii) election statement also should be attached to the Federal income tax returns of each of the tax-exempt shareholders or beneficiaries of Taxpayer.

The rulings contained in this letter are 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 a ruling, it is subject to verification on examination.
PLR-120142-24
5

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.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. We express no opinion regarding the tax treatment of the instant transaction under the provisions of any other sections of the Code or regulations that may be applicable, or regarding the tax treatment of any conditions existing at the time of, or effects resulting from, the instant transaction.

Pursuant to the Form 2848, Power of Attorney and Declaration of Representative, on file, we are sending a copy of this letter to Taxpayer’s authorized representatives. We are also sending a copy of this letter ruling to the appropriate Service operating division official.

Sincerely,

AMY S. WEI
Senior Technician Reviewer, Branch 7
Office of Chief Counsel
(Income Tax & Accounting)

cc: -------------------
--------------------------
---------------------------------------

-----------------
--------------------------
---------------------------------------

-------------------------------------