Corporation gets time to make tax-exempt controlled entity election

Plain-English summary

A corporation owned through an exempt parent intended to elect out of treatment as a tax-exempt entity under the depreciation rules. It filed its tax return on time but omitted the required election statement. The IRS granted 60 calendar days from the ruling to file an amended return with the statement. The corporation must attach the ruling to the election statement, and copies of both should also accompany the federal returns of its exempt shareholders or beneficiaries. The election affects whether the tax-exempt use property rules can apply to property associated with the corporation.

Ruling snapshot

• Question: May the corporation make a late election under IRC § 168(h)(6)(F)(ii)?
• Outcome: Approved, with a 60-day amended-return deadline
• Key authorities: IRC § 168(h)(6)(F)(ii); Treas. Reg. §§ 301.9100-1, 301.9100-3, 301.9100-7T(a)(3)

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202641003
Third Party Communication: None
Release Date: 10/9/2026
Date of Communication: Not Applicable
Index Number: 9100.04-00
Person To Contact:
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Telephone Number:
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----------------------------------------- Refer Reply To:
CC:ITA:B07
PLR-104384-26
Date:
July 14, 2026

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

Legend

Taxpayer = --------------------------------------------------------------------------
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Exempt Parent = --------------------------------------------------------------------------
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Member = -------------------------------------------------------------

Year1 = -------------------------------------------------------------------
Date1 = -----------------------
Month1 = ---------------------

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

This letter ruling responds to a letter dated January 30, 2026, and subsequent correspondence, that was 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 for Year1.

FACTS

Taxpayer represents that the facts are as follows:

Taxpayer, a limited liability company that is treated as a corporation for Federal income tax purposes, files a Form 1120, U.S. Corporation Income Tax Return, on a
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calendar-year basis. Taxpayer’s overall method of accounting is an accrual method. Taxpayer’s trade or business is investment. Taxpayer is wholly owned by Exempt Parent, a limited partnership that is treated as a partnership for Federal income tax purpose and whose sole member is Member, a nonprofit entity exempt from taxation under § 115(1) as an employee benefit plan.

Because Taxpayer is treated as a C corporation and is owned by Exempt Parent, Taxpayer is a tax-exempt controlled entity within the meaning of § 168(h)(6)(F)(iii).

Relying upon the expertise and experience of its in-house tax personnel, Taxpayer timely filed its Year1 Form 1120 on Date1, with the intention to make the election under § 168(h)(6)(F)(ii) not to be treated as a tax-exempt entity. However, Taxpayer inadvertently failed to attach to the Form 1120 the election statement required by § 301.9100-7T(a)(3)(i). Other than the missed election statement, Taxpayer prepared the Year1 Form 1120 as though Taxpayer was not treated as a tax-exempt entity.

During Month1, an employee of Taxpayer discovered the failure to attach the election statement. Upon discovery, Taxpayer took immediate action to prepare and submit this request for relief.

Finally, Taxpayer represents that, in failing to make the election under § 168(h)(6)(F)(ii), it acted reasonably and in good faith because Taxpayer exercised reasonable diligence and reasonably relied on the expertise of in-house tax professionals, and that the granting of relief will not prejudice the interests of the Government.

RULING REQUESTED

Taxpayer requests an extension of time under §§ 301.9100-1 and 301.9100-3 to make the election under § 168(h)(6)(F)(ii) not to be treated as a tax-exempt entity for Year1.

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 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
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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 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 may 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)(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.

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.
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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 make the election under § 168(h)(6)(F)(ii) not to be treated as a tax- exempt entity for Year1. This election must be made by Taxpayer filing an amended Federal tax income tax return for such taxable year, with the election statement required by § 301.9100-7T(a)(3) attached to this return.

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 rulings, all material is subject to verification on examination.

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.

Pursuant to the Form 2848, Power of Attorney and Declaration of Representative, on file, we are sending a copy of this letter to your authorized representatives. We are also sending a copy of this letter to the appropriate operating division director.

Sincerely,

/s Charles J. Magee

CHARLES J. MAGEE
Senior Counsel, Branch 7
Office of Chief Counsel
(Income Tax & Accounting)
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