Taxpayer receives 45 days to submit a late accounting-method request

Plain-English summary

A taxpayer intended to request an accounting-method change on Form 3115 but missed the applicable filing deadline. The proposed change required a section 481(a) adjustment, which ordinarily causes the government's interests to be deemed prejudiced unless unusual and compelling circumstances exist. The IRS found that the taxpayer had acted reasonably and in good faith and that relief would not prejudice the government. It granted 45 days from the ruling date to submit the regulatory election to the IRS National Office with the required user fee. The ruling only permitted the late filing and did not address the substantive merits of the accounting-method change.

Ruling snapshot

• Question: Could the taxpayer submit a late Form 3115 for an accounting-method change requiring a section 481(a) adjustment?
• Outcome: approved
• Key authorities: IRC §§ 446(e) and 481(a); Treas. Reg. §§ 1.446-1(e)(3)(i), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201726006                                              Third Party Communication: None
Release Date: 6/30/2017                                        Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.10-00,
              9100.10-01                                       Person To Contact:
                                                               -------------------, ID No. ----------------
----------------------------------------------                 Telephone Number:
--------------------------------------------                   --------------------
------------------------------------                           Refer Reply To:
                                                               CC:ITA:B06
                                                               PLR-132563-16
--------------------------                                     Date:
-----------------------------------------------------          April 4, 2017




LEGEND

Taxpayer          =        ----------------------------------------------

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


Dear ----------------

This letter responds to Taxpayer’s request for an extension of time under §§ 301.9100-1
and 301.9100-3 of the Procedure and Administration Regulations to file a Form 3115,
Application for Change in Accounting Method, pursuant to § 446(e) of the Internal
Revenue Code for Taxpayer’s taxable year ending Date 1. This Form 3115 should
have been filed by Date 1.

Taxpayer intends to file a Form 3115 to change one of its accounting methods. This
accounting change will require an adjustment under § 481(a).

                                           LAW AND ANALYSIS

Generally, a taxpayer that failed to timely make an election may submit a request for
relief under § 301.9100-1(c) to obtain an extension of time to make the desired election.
An election is defined in § 301.9100-1(b) as including a request to adopt, change, or
retain an accounting method.

Taxpayer is requesting an extension of time to make a regulatory election. A regulatory
election is defined in § 301.9100-1(b) as including an election whose due date is
prescribed by a regulation published in the Federal Register. The Date 1 due date for
PLR-132563-16                                2

Taxpayer's Form 3115 is prescribed by § 1.446-1(e)(3)(i) of the Income Tax Regulations
(pursuant to regulations and other guidance in effect for the taxable year ending Date 1
pertaining to changes in method of accounting).

To obtain an extension of time to make its regulatory election, Taxpayer must satisfy the
requirements listed in § 301.9100-3(a). Specifically, Taxpayer must demonstrate to the
satisfaction of the Commissioner that it acted reasonably and in good faith, and that
granting an extension of time to make the regulatory election will not prejudice the
interests of the Government. Section 301.9100-3(c)(2) provides special rules for
determining whether the Government's interests are prejudiced when the taxpayer is
seeking relief with respect to an accounting method regulatory election.

Under § 301.9100-3(b)(1)(i), generally, a taxpayer will be deemed to have acted
reasonably and in good faith if the taxpayer requests relief before the failure to make the
regulatory election is discovered by the Internal Revenue Service. However, pursuant
to § 301.9100-3(b)(3), a taxpayer will not be considered to have acted reasonably and
in good faith if the taxpayer seeks to alter a return position for which an accuracy-
related penalty has been or could be imposed under § 6662 and the new position
requires or permits an election for which relief is requested or if the taxpayer was
informed in all material respects of the required election and related tax consequences
but the taxpayer chose not to make it. Furthermore, a taxpayer will not be considered to
have acted reasonably and in good faith if the taxpayer uses hindsight in requesting
relief.

Section 301.9100-3(c)(1) describes generally when the interests of the Government are
prejudiced. Generally, the Government's interests are prejudiced if granting relief under
§ 301.9100 would result in a taxpayer having a lower tax liability in the aggregate for all
tax years affected by the regulatory election than the taxpayer would have had if the
election had been timely made (taking into account the time value of money). Further,
the interests of the Government are ordinarily prejudiced if the tax year in which the
regulatory election should have been made or any tax years that would have been
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.

The Government's interests are deemed to be prejudiced except in unusual and
compelling circumstances if the regulatory election for which relief under § 301.9100 is
requested is subject to the procedure described in § 1.446-1(e)(3)(i). Further, the
Government's interests are deemed to be prejudiced except in unusual and compelling
circumstances if the regulatory election for which relief under § 301.9100 is requested
requires an adjustment under § 481(a). See § 301.9100-3(c)(2)(i) and (ii).
PLR-132563-16                                  3

                                       CONCLUSION

The information furnished by Taxpayer demonstrates to the satisfaction of the
Commissioner that it had acted reasonably and in good faith, and that granting an
extension of time to make the desired regulatory election would not prejudice the
interests of the Government. Accordingly, Taxpayer is granted 45 days from the date of
this letter to submit its regulatory election to the National Office of the Internal Revenue
Service. The appropriate user fee must be enclosed with this regulatory election.

No opinion is expressed or implied as to the application of any other provisions of the
Code or the regulations that may be applicable to the transaction. It should be
understood that this ruling only permits Taxpayer to file the regulatory election at issue
for the taxable year ending Date 1.

The ruling contained in this letter ruling is based upon facts and representations
submitted by Taxpayer, with accompanying penalty of perjury statements executed by
appropriate parties. While this office has not verified any of the material submitted in
support of this request for an extension of time to file the regulatory election, all material
is subject to verification on examination.

This ruling is directed only to Taxpayer, who requested it. Section 6110(k)(3) provides
that this ruling may not be used or cited as precedent.

In accordance with the power of attorney on file with the Service, we are sending a copy
of this letter to Taxpayer's authorized representatives.

                                        Sincerely,



                                        CHERYL L. OSEEKEY
                                        Senior Counsel, Branch 6
                                        Office of Associate Chief Counsel
                                        (Income Tax & Accounting)

Enc.: Copy for § 6110 purposes