60 days granted to make a late election letting a tax-exempt-controlled corporation use faster depreciation

Plain-English summary

A C corporation was owned by a parent partnership whose partners were more
than half tax-exempt entities. That made the corporation a "tax-exempt
controlled entity" under Section 168(h). Normally that status forces
property to be depreciated under the slower alternative depreciation
system. Section 168(h)(6)(F)(ii) lets such an entity elect out of
tax-exempt treatment so it can use the faster general depreciation system,
but the election has to be attached to the tax return for the first year it
applies. The corporation depreciated its assets as if it had made the
election, but its preparer never attached the required election statement.
When the error surfaced, the corporation asked the IRS for more time under
Treasury Regulation § 301.9100-3. Finding the taxpayer acted reasonably and
in good faith and that late relief would not prejudice the government, the
IRS granted 60 days to file the election statement, effective for the year
in question. The election is irrevocable and binds all the tax-exempt
entities holding an interest.

Ruling snapshot

• Question: May a tax-exempt controlled corporation get more time to
  make a late election under Section 168(h)(6)(F)(ii) not to be treated as
  a tax-exempt entity?
• Outcome: Approved (60-day extension granted)
• Key authorities: IRC § 168(h)(6)(F)(ii); Treas. Reg. § 301.9100-7T;
  Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202614023                                              Third Party Communication: None
 Release Date: 4/3/2026                                         Date of Communication: Not Applicable
 Index Number: 9100.04-00
                                                                Person To Contact:
 ---------------------                                          ----------------------, ID No. -----------------
 -----------------------------------------                      Telephone Number:
 --------------------------------------                         ---------------------
 ----------------------------------------------                 Refer Reply To:
                                                                CC:ITA:B07
                                                                PLR-115239-25
                                                                Date:
                                                                January 05, 2026




In re: -----------------------------------------
----------------------------------
         Request for an extension of time to make an election not to be treated as a tax-
         exempt entity

Legend

             Parent                               = -----------------------------------------------------------
             Taxpayer                             = --------------------------------------
             Sub1                                 = -------------------------------------------------------------
                                                    -------------------------
             Sub2                                 = -------------------------------------------------------------
                                                    -------------------------
             Sub3                                 = -------------------------------------------------------------
                                                    -------------------------
             Advisor                              = --------------------------
             Taxable Year                         = -----------------------------------------------------------
             X                                    = -------------------------------------------------------------
                                                    -------------------------------------------------------------
                                                    -------------------------------------------------------
             State Z                              = -------------


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

       This letter ruling responds to Taxpayer’s letter dated July 31, 2025, and
subsequent correspondence, submitted by Taxpayer. Taxpayer requests an extension
of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations to make the election under § 168(h)(6)(F)(ii) of the Internal Revenue Code
not to be treated as a tax-exempt entity beginning in Taxable Year.
PLR-115239-25                                 2

      This letter ruling is being issued electronically in accordance with section 7.02(5)
of Rev. Proc. 2025-1, 2025-1 I.R.B. 1, 34-35.

                                          FACTS

       Taxpayer represents the facts are as follows:

       Taxpayer, a C corporation organized under the laws of the State Z, files a Form
1120, U.S. Corporation Income Tax Return, and is not a member of a consolidated
group under § 1.1502-1(h) of the Income Tax Regulations. Taxpayer uses an accrual
method as its overall accounting method and the calendar year as its annual accounting
period. Taxpayer is involved in the business of X. Taxpayer owns interests in three
partnerships: Sub1, Sub2, and Sub3. Sub1, Sub2, and Sub3 in turn hold interests in
certain subsidiary partnerships. Taxpayer provided copies Forms 4562, Depreciation
and Amortization (Including Information on Listed Property), and Schedules K-1 and K-3
(Form 1065) from those subsidiary partnerships for Taxable Year to this office.
Taxpayer represents those depreciation deductions are passed up through the
subsidiaries to itself and others invested in Sub1, Sub2, Sub3, and those subsidiaries.

        Taxpayer is wholly owned by Parent. More than 50 percent of the partners of
Parent are tax-exempt entities within the meaning of § 168(h)(2). Accordingly, because
tax-exempt entities own more than 50% in value of the stock of Taxpayer, Taxpayer,
which is not itself a tax-exempt entity within the meaning of § 168(h)(2) (without regard
to § 168(h)(6)), is a tax-exempt controlled entity within the meaning of
§ 168(h)(6)(F)(iii)(I). Taxpayer represents that the investors of Parent expected that
Taxpayer would make the election not to be treated as a tax-exempt entity under
§ 168(h)(6)(F)(ii). Further, Taxpayer represents that Parent’s subscription documents,
providing information to prospective investors about Parent’s contemplated operations,
reflect that Taxpayer intended to make the election not to be treated as a tax-exempt
entity under § 168(h)(6)(F)(ii) to claim depreciation allowances under the general
depreciation system (GDS) of § 168(a).

        Taxpayer engaged Advisor to prepare Taxpayer’s Federal income tax return for
Taxable Year. Taxpayer provided Advisor documentation for return preparation, in
relevant part claiming depreciation as if it had made a valid § 168(h)(6)(F)(ii) election.
However, due to an administrative oversight, Taxpayer inadvertently did not mark its
documentation to indicate the need for a § 168(h)(6)(F)(ii) election statement. As a
result, the submitted Forms 4562 and Schedules K-1 and K-3 reflect depreciation
claimed for assets placed in service in Taxable Year, where applicable, but do not
include a § 168(h)(6)(F)(ii) election statement. Neither Taxpayer nor Advisor realized
this error when filing Taxpayer’s Federal income tax return for Taxable Year. Later,
while confirming tax filings for its partners, Taxpayer discovered the error. Taxpayer
then engaged Advisor to file this request for relief.
PLR-115239-25                                 3

       Taxpayer represents that, in failing to make the election, it acted reasonably and
in good faith because Taxpayer exercised reasonable diligence and 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 Commissioner of Internal Revenue grant it an
extension of time under §§ 301.9100-1 and 301.9100-3 to make the election under
§ 168(h)(6)(F)(ii) to not to be treated as a tax-exempt entity beginning with Taxable
Year.

                                           LAW

       Section 167(a) provides that there shall be allowed as a depreciation deduction a
reasonable allowance for the exhaustion, wear and tear, and obsolescence of property
used in the trade or business, or in the production of income. 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 that
is not tax-exempt property is owned by a partnership having both a tax-exempt entity
and non-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 purpose of § 168(h)(5) and (h)(6). Under
§ 168(h)(6)(F)(iii)(I), a corporation (without regard to § 168(h)(6)(F)(iii)(I) 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 may elect to not 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)(1), a § 168(h)(6)(F)(ii) election must be made in
accordance with the rules provided in §§ 301.9100-7T(a)(2) and (a)(3). Under
§ 301.7701-7T(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.
PLR-115239-25                                  4

      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 certain regulatory elections.

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

       Section 301.9100-1(b) defines a regulatory election as one whose due date is
prescribed by regulations published in the Federal Register, a revenue ruling, revenue
procedure, notice, or announcement published in the Internal Revenue Bulletin.
Because the due date of the § 168(h)(6)(F)(ii) 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.

                                       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.
Accordingly, 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
beginning in Taxable Year.

        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 as the § 168(h)(6)(F)(ii)
election statement should also be attached to the Federal income tax returns of each of
the tax-exempt shareholders or beneficiaries of Taxpayer.

       The ruling contained in this letter is based upon information and representations
submitted by Taxpayer and accompanied by penalty of perjury statements executed by
the appropriate parties. While this office has not verified any of the material submitted
in support of the request for ruling, all material is subject to verification on examination.
PLR-115239-25                                            5

       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.

      This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of
the Code 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 with this office, a copy of this letter is being sent to your
authorized representatives. We are also sending a copy of this letter ruling to the
appropriate Service operating division official.


                                                Sincerely,



                                                BRUCE C. CHANG
                                                Assistant to the Branch Chief, Branch 7
                                                Office of Associate Chief Counsel
                                                (Income Tax & Accounting)

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