120-day relief for two late elections tied to a tax-exempt-owned low-income housing entity

Plain-English summary

When property is used by a tax-exempt entity, special "tax-exempt use property" rules force the owner to depreciate it slowly under the alternative depreciation system, which shrinks the deductions. Here an LLC (more than 50 percent owned by a 501(c)(3) charity) was the general partner of a partnership that owns and operates a low-income housing project generating section 42 credits. The partnership agreement required the LLC to make an election under section 168(h)(6)(F)(ii) not to be treated as a tax-exempt controlled entity, and that election first required the LLC to be taxed as a corporation, so the LLC also needed an entity classification election (Form 8832) changing it from a partnership to an association. The LLC intended to make both but never filed them on time. It asked the IRS for relief under Treas. Reg. § 301.9100-3. The IRS found the LLC acted reasonably and in good faith and that relief would not prejudice the government, so it granted 120 days from the date of the letter to file both elections, conditioned on filing consistent returns. The IRS expressed no opinion on whether the LLC was otherwise eligible to make the elections.

Ruling snapshot

• Question: Should the LLC get an extension of time to make a late entity classification election (Form 8832) and a late section 168(h)(6)(F)(ii) election?
• Outcome: Approved (120 days for both elections, subject to consistent-return conditions)
• Key authorities: IRC § 168(h)(6)(F)(ii); Treas. Reg. §§ 301.7701-3, 301.9100-7T, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202547001 Third Party Communication: None
Release Date: 11/21/2025 Date of Communication: Not Applicable
Index Numbers: 168.00-00, 7701.00-00,
9100.04-00, 9100.31-00 Person To Contact:
--------------, ID No. -----------------
--------------------------------------- Telephone Number:
------------------------------------------------------------ --------------------
------------------------------------------------------------ Refer Reply To:
------------------------------------------------------------ CC:PT&E:B03
--------------------------------------------------- PLR-100791-25
--------------------------------- Date:
------------------------------- August 15, 2025

LEGEND

X = ---------------------------------------

Y = -------------------------------------------------

Agreement = ----------------------------------------------------------------------------------------------

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

Partnership = -------------------------------------

Project = -----------------------------

State = --------------------

Tax Year = -----------------------------------------------------

Date 1 = --------------------

Date 2 = --------------------------
PLR-100791-25 2

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

    This letter responds to a letter dated November 22, 2024, and subsequent

correspondence, submitted on behalf of X by its authorized representatives, requesting
an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations for X (1) to file an election under § 301.7701-3 to be
classified as an association taxable as a corporation and (2) to make an election under
§ 168(h)(6)(F)(ii) of the Internal Revenue Code ("Code") not to be treated as a tax-
exempt controlled entity.

                                     FACTS

    The information submitted states that X was formed as a limited liability company

under the laws of State on Date 1. Prior to Date 2, X was classified as a partnership for
federal tax purposes. X represents that it intended to elect to change its classification
from a partnership to an association taxable as a corporation for federal tax purposes
effective Date 2. However, X failed to file Form 8832, Entity Classification Election,
electing to be classified as an association taxable as a corporation for federal tax
purposes effective Date 2.

    Y, a tax-exempt entity described in § 501(c)(3), owns more than 50 percent of X.

X is a general partner of Partnership. Partnership was formed to provide affordable
housing and, in furtherance of such purpose, to acquire, rehabilitate, own, lease, and
manage Project. Project is a qualified low-income housing project pursuant to § 42.
Project was placed in service in Tax Year. Under § 14.29(ix) of Partnership's
Agreement, X was required to make an election under § 168(h)(6)(F)(ii) not to be
treated as a tax-exempt controlled entity for purposes of the tax-exempt use property
rules ("§ 168(h)(6)(F)(ii) election"). To make the foregoing election, X was required to
be an association taxable as a corporation effective Date 2.

  X represents that it intended to make a § 168(h)(6)(F)(ii) election effective for Tax

Year. However, because X was not classified as an association taxable as a
corporation effective Date 2, X was not able to make the § 168(h)(6)(F)(ii) election on
X's Form 1120, Corporation Income Tax Return, for Tax Year, despite filing such a
statement.

                              LAW AND ANALYSIS

    Section 167(a) provides generally 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 generally is determined under § 168. Under
§ 168(g), the alternative depreciation system (rather than the general depreciation
system provided under § 168(a)) must be used for any tax-exempt use property as
defined in § 168(h).
PLR-100791-25 3

    Section 168(h)(6)(A) provides that, for purposes of § 168(h), if any property

which (but for this subparagraph) is not tax-exempt use property is owned by a
partnership which has both a tax-exempt entity and a person who is not a tax-exempt
entity as partners and any allocation to the tax-exempt entity is not a qualified allocation,
then an amount equal to the 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 "tax-exempt controlled entity" means any corporation (without
regard to that subparagraph and § 168(h)(2)(E)) 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 for purposes of § 168(h)(5) and (6). Such an election is
irrevocable and will bind all tax-exempt entities holding an interest in the tax-exempt
controlled entity. Under § 301.9100-7T(a)(1), a § 168(h)(6)(F)(ii) election must be made
in accordance with the rules provided in §§ 301.9100-7T(a)(2) and (3).

    Under § 301.9100-7T(a)(2)(i), the § 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) provides the manner in which the § 168(h)(6)(F)(ii)
election is made.

    Section 301.7701-3(a) provides that a business entity that is not classified as a

corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can
elect its classification for federal tax purposes. An eligible entity with at least two
members can elect to be classified as either an association (and thus a corporation
under § 301.7701-2(b)(2)) or a partnership. Elections are necessary only when an
eligible entity does not want to be classified under the default classification or when an
eligible entity chooses to change its classification.

   Section 301.7701-3(b)(1) provides that except as provided in § 301.7701-3(b)(3),

unless the entity elects otherwise, a domestic eligible entity is (i) a partnership if it has
two or more members; or (ii) disregarded as an entity separate from its owner if it has a
single owner.

    Section 301.7701-3(c)(1) provides, in part, that an eligible entity may elect to be

classified other than as provided under § 301.7701-3(b), or to change its classification,
by filing Form 8832 with the service center designated on Form 8832. Section
301.7701-3(c)(1)(iii) provides that an election under § 301.7701-3(c)(1)(i) will be
effective on the date specified by the entity on Form 8832 or on the date filed if no such
date is specified on the election form. The date specified on Form 8832 cannot be more
PLR-100791-25 4

than 75 days prior to the date on which the election is filed and cannot be more than 12
months after the date the election is filed.

   Section 301.7701-3(g)(1)(i) provides that if an eligible entity classified as a

partnership elects under § 301.7701-3(c)(1)(i) to be classified as an association, the
partnership is deemed to contribute all of its assets and liabilities to the association in
exchange for stock in the association, and immediately thereafter, the partnership
liquidates by distributing the stock of the association to its partners.

   Section 301.7701-3(g)(3)(i) provides that an election under § 301.7701-3(c)(1)(i)

that changes the classification of an eligible entity for federal tax purposes is treated as
occurring at the start of the day for which the election is effective.

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

   Section 301.9100-1(b) defines the term "regulatory election" as including any

election the due date for which is prescribed by a regulation. Because the due date of
an election under § 168(h)(6)(F)(ii) is prescribed in § 301.9100-7T, that election is a
regulatory election. In addition, because the due date of an entity classification election
is prescribed in § 301.7701-3(c), that election is a regulatory election.

    Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3

will be granted when the taxpayer provides 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 the relief will not prejudice the
interests of the Government.

  Section 301.9100-3(b)(1) provides 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 due diligence, 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, and the professional
failed to make, or advise the taxpayer to make, the election.

   Under § 301.9100-3(b)(3), a taxpayer is deemed to have not acted reasonably

and in good faith if the taxpayer—
PLR-100791-25 5

   (i)     Seeks to alter a return position for which an accuracy-related penalty
           could be imposed under § 6662 at the time the taxpayer requests relief,
           and the new position requires a regulatory election for which relief is
           requested;
   (ii)    Was fully informed 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 the taxpayer, the
           Service will not ordinarily grant relief.

    Section 301.9100-3(c)(1) provides that the Service will grant a reasonable

extension of time only when the interests of the Government will not be prejudiced by
the granting of the relief. Section 301.9100-3(c)(1)(i) provides 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. Under § 301.9100-
3(c)(1)(ii), the interests of the Government are ordinarily prejudiced if the taxable year in
which the regulatory election should have been made, or any taxable year 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
under § 301.9100-3.

                                  CONCLUSION

    Based solely on the facts submitted and the representations made, we conclude

that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a
result, we grant X an extension of time of 120 days from the date of this letter to file
Form 8832 with the appropriate service center to elect to be classified as an association
taxable as a corporation for federal tax purposes effective Date 2. A copy of this letter
should be attached to the Form 8832.

   In addition, based solely on the facts as represented and the applicable law, we

conclude that X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3 for
granting an extension of time to file its § 168(h)(6)(F)(ii) election. X 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. As a result, X is granted an extension of time of
120 days from the date of this letter to file with the appropriate service center the
§ 168(h)(6)(F)(ii) election statement with its Form 1120 for Tax Year containing the
information required in § 301.9100-7T(a)(3) for that election to be effective for Tax Year.
X must attach a copy of this letter ruling to its § 168(h)(6)(F)(ii) election statement.
Pursuant to § 301.9100-7T(a)(3)(ii), a copy of this letter and X's § 168(h)(6)(F)(ii)
election statement must also be attached to the federal income tax returns of each of
the tax-exempt shareholders or beneficiaries of X.
PLR-100791-25 6

    These rulings are contingent on X, within 120 days from the date of this letter,

filing all required returns for all relevant years consistent with the requested relief
granted in this letter. A copy of this letter should be attached to any such returns for the
tax years affected. Alternatively, if X files its tax returns electronically, it may satisfy this
requirement by attaching a statement to its returns that provides the date and control
number of this letter ruling.

   Except as expressly provided herein, we express or imply no opinion concerning

the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. 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.

    Further, we express no opinion concerning interest, additions to tax, additional

amounts or penalties with respect to any taxable year that may be affected by these
rulings. For example, we express or imply no opinion as to whether a taxpayer is
entitled to relief from any penalty on the basis that the taxpayer had reasonable cause
for failure to file timely any income tax or information returns.

  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 requested rulings, it is subject to verification on
examination.

  These rulings are directed only to the taxpayer requesting them. Section

6110(k)(3) of the Code provides that they may not be used or cited as precedent.

    Pursuant to a power of attorney on file with this office, we are sending a copy of

this letter to X's authorized representatives.

                                     Sincerely,

                                     Associate Chief Counsel
                                     (Passthroughs, Trusts, and Estates)



                                By: ______________________________
                                    Mary Beth Carchia
                                    Senior Technician Reviewer, Branch 3
                                    Office of the Associate Chief Counsel
                                    (Passthroughs, Trusts, and Estates)

PLR-100791-25 7

Enclosure:
Copy of this letter for § 6110 purposes

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