Partnership receives 45 days to perfect accounting-method changes

Plain-English summary

A partnership decided to make automatic accounting-method changes for IRC § 263A capitalization and accrued bonuses. Its CPA timely filed the duplicate Form 3115 with the IRS, but a staff error caused both the partnership return and the original attached Form 3115 to be filed one day late. The IRS found the requirements of Treasury Regulation § 301.9100-3 satisfied and granted 45 days to file an identical original Form 3115 with an amended return. The ruling did not validate the proposed methods, the automatic-change eligibility, or treatment of the partnership and disregarded entity as one business. It also did not excuse the late return or any resulting penalties and interest.

Ruling snapshot

• Question: Could the partnership receive additional time to file the original Form 3115 for two automatic accounting-method changes?
• Outcome: approved
• Key authorities: IRC §§ 263A and 446(e); Treas. Reg. § 301.9100-3; Rev. Proc. 2015-13 § 6.03

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201728019 Third Party Communication: None
Release Date: 7/14/2017 Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 9100.10-00,
9100.10-01 Person To Contact:
---------------------, ID No. ------------------
----------------------------------------- Telephone Number:
-------------------------- ----------------------
--------------------------------- Refer Reply To:
CC:ITA:B06
PLR-138498-16
--------------------------- Date:
---------------------------------------- April 19, 2017

LEGEND

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

Disregarded Entity = -------------------------------------------
-------------------------

CPA = ----------------------------

Date A = ----------------------------

Year 1 = -------

Year 2 = -------

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

This ruling responds to a recent letter that was submitted by Taxpayer’s representative,
CPA. CPA has requested that the Commissioner of Internal Revenue give Taxpayer an
extension of time pursuant to §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations to file the original of a Form 3115, Application for Change in
Accounting Method. Taxpayer should have filed this Form 3115, pursuant to section
6.03(1)(a)(i) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, on or before Date A.
PLR-138498-16 2

                                       FACTS

Taxpayer represents the following facts:

Taxpayer is a limited liability company that is treated as a partnership for Federal tax
purposes. In Year 1, Taxpayer engaged CPA to provide technical tax advice related to
certain of Taxpayer’s methods of accounting and also to prepare and file Taxpayer’s
U.S. Federal income tax return for Year 2.

Taxpayer decided to change its methods of accounting for capitalizing costs under
§ 263A of the Internal Revenue Code, and for accrued bonuses for the Year 2 taxable
year. The changes were to be made by Taxpayer and a Disregarded Entity that is
wholly owned by Taxpayer, both of which constitute a single trade or business under
§ 446(d) and § 1.446-1(d) of the Income Tax Regulations. Both accounting method
changes were to be made pursuant to the automatic consent procedures of Rev. Proc.
2015-13 and Rev. Proc. 2016-29, 2016-21 I.R.B. 880.

Taxpayer timely filed Form 7004, Application for Automatic Extension of Time to File
Certain Business Income Tax, Information, and Other Returns, which provided
Taxpayer an extension until Date A to file its U.S. Federal income tax return for Year 2.

In completing its duties, CPA filed the duplicate copy of the Form 3115 with the
appropriate office of the Internal Revenue Service prior to Date A. See section
6.03(1)(a)(i) of Rev. Proc. 2015-13. However, CPA failed to file both Taxpayer’s U.S.
Federal income tax return, as well as the required-to-be-attached original of Taxpayer’s
Form 3115, on or before Date A due to an error committed by a staff member of CPA.
The error was discovered the day after Date A, at which point CPA filed the return with
the original of the Form 3115 attached. Subsequently, CPA submitted this request for
an extension of time to file the original of Taxpayer’s Form 3115.

                             RULING REQUESTED

Taxpayer requests an extension of time pursuant to §§ 301.9100-1 and 301.9100-3 to
file the original Form 3115 required by Rev. Proc. 2015-13 in order to make a change in
method of accounting for Year 2 for capitalizing costs under § 263A and for accrued
bonuses.

                             LAW AND ANALYSIS

Rev. Proc. 2015-13 provides the procedures by which a taxpayer may obtain automatic
consent to change certain accounting methods. A taxpayer complying with all the
applicable provisions of this revenue procedure has obtained the consent of the
PLR-138498-16 3

Commissioner to change its method of accounting under § 446(e) and the Regulations
thereunder.

Section 6.03(1)(a)(i) of Rev. Proc. 2015-13 provides that a taxpayer changing an
accounting method pursuant to Rev. Proc. 2015-13 must complete and file a Form 3115
in duplicate. The original must be attached to the taxpayer’s timely filed (including any
extensions) original Federal income tax return for the year of change, and a copy (with
signature) of the Form 3115 must be filed with the appropriate office of the Service no
earlier than the first day of the year of change and no later than when the original is filed
with the Federal income tax return for the year of change.

Section 301.9100(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under 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 standard the Commissioner will
use to determine whether to grant an extension of time to make an election. Section
301.9100-2 provides automatic extensions of time for making certain elections. Section
301.9100-3 provides extensions of time for making elections that do not meet the
requirements of § 301.9100-2.

Section 301.9100-3(a) provides that requests for relief subject to § 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
granting of relief will not prejudice the interests of the Government.

                                  CONCLUSION

Based solely on the representations submitted, this office concludes that the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied in Taxpayer’s case.
Accordingly, Taxpayer is granted 45 calendar days from the date of this letter to file the
required original of the Form 3115 (identical to the duplicate copy already filed with the
Internal Revenue Service) changing Taxpayer’s methods of accounting for capitalizing
costs under § 263A and for accrued bonuses for Year 2 with an amended Federal
income tax return for that year. Please attach a copy of this letter ruling to the amended
return.

Except as expressly set forth above, this office neither expresses nor implies any
opinion concerning the tax consequences of the facts described above under any other
provision of the Code or regulations. Specifically, we have no opinion, either expressed
or implied, concerning (1) whether the two accounting method changes Taxpayer has
attempted to make are eligible to be made under the automatic consent procedures of
Rev. Proc. 2015-13 and Rev. Proc. 2016-29; (2) whether Taxpayer otherwise meets the
PLR-138498-16 4

requirements of Rev. Proc. 2015-13 to make accounting method changes using Rev.
Proc. 2015-13; (3) whether Taxpayer is properly able to file both proposed accounting
method changes for itself and Disregarded Entity on the same Form 3115; and (4)
whether Taxpayer and Disregarded Entity constitute a single trade or business under
§ 446(d) and § 1.446-1(d). Further, no opinion is expressed regarding the correctness
of Taxpayer’s proposed methods for capitalizing costs under § 263A or accounting for
accrued bonuses. Lastly, we emphasize that this letter ruling does not grant any
extension of time for the filing of Taxpayer’s Federal income tax return for Year 2.
Taxpayer is subject to any appropriate penalty and interest resulting from its failure to
have its tax return filed timely.

The ruling contained in this letter ruling is based upon facts and representations
submitted by CPA on behalf of itself and Taxpayer, with accompanying penalties 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 required Form 3115, all material is subject to verification on examination.

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

In accordance with the power of attorney on file with our office, we are sending copies
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