Couple receives 120 days to make a late rental real estate grouping election

Plain-English summary

A married couple filed jointly, and one spouse represented that he qualified as a real estate professional for the relevant year. Their original return inadvertently omitted the statement electing to treat all rental real estate interests as one activity under section 469(c)(7). The IRS found that the couple met the discretionary-relief standards and granted 120 days to make the election effective for that year. They had to attach the required statement and a copy of the ruling to an amended return. The IRS did not decide whether the spouse actually met the real estate professional tests or whether the couple materially participated in any activity.

Ruling snapshot

• Question: Could the couple make a late election to treat all rental real estate interests as a single activity?
• Outcome: approved
• Key authorities: IRC § 469(c)(7); Treas. Reg. §§ 1.469-9(g)(3) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                          Department of the Treasury
                                                  Washington, DC 20224

Number: 201725003                                 Third Party Communication: None
Release Date: 6/23/2017                           Date of Communication: Not Applicable
Index Number: 469.03-03, 9100.00-00
                                                  Person To Contact:
-------------------------------------             -----------------------
------------------------------                    -------------------------
---------------------------------                 Telephone Number:
                                                  --------------------
                                                  Refer Reply To:
                                                  CC:PSI:B03
                                                  PLR-108244-17
                                                  Date:
                                                  March 23, 2017

LEGEND:

A        =         ------------------------
-----------------------------------------

B        =         --------------------
-----------------------------------------

Year =            ------


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

        This responds to a letter dated March 8, 2017, submitted on behalf of A and B by
their authorized representatives, requesting an extension of time under § 301.9100-3 of
the Procedure and Administration Regulations for A and B to file an election under
§ 469(c)(7) of the Internal Revenue Code and § 1.469-9(g)(3) of the Income Tax
Regulations to treat all interests in rental real estate as a single rental real estate
activity.

Facts

        According to the information submitted, A and B are married individuals who file
their tax returns jointly. A and B represent that in Year A was engaged in a real
property trade or business as defined in § 469(c)(7)(C) and qualified under
§469(c)(7)(B) to make an election to treat all interests in rental real estate as a single
rental real estate activity. However, A and B inadvertently filed their joint return for Year
without the statement required under § 1.469-9(g)(3).
PLR-108244-17                                   2

Law and Analysis

        Under § 469(c)(2), the term “passive activity” generally includes any rental
activity. Section 469(c)(7) provides a limited exception to this rule for taxpayers in a real
property trade or business. Specifically, § 469(c)(7)(A) indicates that if a taxpayer
meets the requirements of § 469(c)(7)(B), the taxpayer's rental real estate activity will no
longer be presumptively passive. By its terms, the exception under § 469(c)(7)(A) is to
be applied as if each interest of the taxpayer in rental real estate were a separate
activity. However, a taxpayer may elect to treat all interests in rental real estate as a
single activity.

        Section 1.469-9(g)(3) provides that a qualifying taxpayer makes the election to
treat all interests in rental real estate as a single rental real estate activity by filing a
statement with the taxpayer's original income tax return for the taxable year. Section
1.469-9(g)(3) describes the information that must be contained in the statement.

       Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of
time to make a regulatory election, or a statutory election (but no more than 6 months
except in the case of a taxpayer who is abroad), under all subtitles of the Internal
Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term
“regulatory election” as including an election whose due date is prescribed by a
regulation published in the Internal Revenue Bulletin.

       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 the rules governing automatic extensions of time for
making certain elections. Section 301.9100-3 provides the standards the Commissioner
will use to determine whether to grant an extension of time for regulatory elections that
do not meet the requirements of § 301.9100-2.

        Section 301.9100-3 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 the grant
of relief will not prejudice the interests of the government.

Conclusion

        Based solely on the information submitted and the representations made, we
conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
As a result, A and B are granted an extension of time of 120 days from the date of this
letter to make an election under § 469(c)(7)(A) to treat all their interests in rental real
estate as a single rental real estate activity effective Year. The election must be in the
PLR-108244-17                                  3

form of the statement required by § 1.469-9(g)(3) and attached to an amended return
for Year. A copy of this letter should be attached to the election. A copy is enclosed for
that purpose.

        Except as specifically set forth above, no opinion is expressed concerning the
federal tax consequences of the facts described above under any other provision of the
Code. Specifically, no opinion is expressed concerning whether A satisfies the
requirements under § 469(c)(7)(B) or whether A and B materially participated in any
activity.

      This ruling is directed only to the taxpayers requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.

      In accordance with the power of attorney on file with this office, we are sending a
copy of this letter to your authorized representative.


                                  Sincerely,


                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)



                              By: ______________________________
                                  James A. Quinn
                                  Senior Counsel, Branch 3
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

Enclosures (2):
      Copy of this letter
      Copy for § 6110 purposes