Developer receives extension to file alternative cost method request

Plain-English summary

A real estate developer used Revenue Procedure 92-29's alternative cost method for common improvements and attached the required request and limitations consent to its timely return. Its employee completed a duplicate request for the regional director but failed to mail it by the deadline while the taxpayer was undergoing a redacted event. The IRS found that the taxpayer acted reasonably and in good faith and that relief would not prejudice the government. It granted a 60-day extension to file the duplicate request. The ruling did not decide whether the developer otherwise qualified to use the alternative cost method.

Ruling snapshot

• Question: Could the developer receive additional time to file the required duplicate request to use the alternative cost method?
• Outcome: Approved; the taxpayer received 60 days from the ruling date to file the copy with the applicable regional director.
• Key authorities: Treas. Reg. §§ 301.9100-1 and 301.9100-3; Rev. Proc. 92-29

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201822014 Third Party Communication: None
Release Date: 6/1/2018 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
---------------------, ID No. ---------------
---------------------- Telephone Number:
------------------------ -------------------
------------------------------------- Refer Reply To:
CC:ITA:B02
PLR-130415-17
ATTN: -------------------- --------------------- Date: February 26, 2018

              TY: Date 1

Legend

Taxpayer =---------- ----------------
Date 1 = --------------------------
Date 2 = --------------------------
Date 3 = ---------------------
Date 4 = ------------------
Date 5 = ------------------
A = ----
B = -------------
C = --------------------
D = ---------------------------------------------

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

This is in response to your letter dated Date 2, requesting permission to file a copy

of the request to use the alternative cost method with the A director for the region of
your principal place of business for your taxable year ending Date 1. The copy of the
request to use the alternative cost method was not timely filed with the A director for the
region of your principal place of business, although it was required in order for Taxpayer
to use the alternative cost method of accounting in conformity with the requirements of
Rev. Proc. 92-29, 1992-1 C.B. 748. The request is made in accordance with §§
301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations.
FACTS
Taxpayer represents the following:

Taxpayer is a B real estate builder and developer. Taxpayer files a consolidated
federal income tax return.

Taxpayer sold the initial home in one or more communities under development in the
taxable year beginning Date 3 and ending Date 1. Taxpayer used the alternative cost
method described in section 4 of Rev. Proc. 92-29 to compute the gain or loss on the
homes sold in those communities during the year on its federal income tax return for the
taxable year ending Date 1.

Taxpayer filed its original federal income tax return for the taxable year ending Date

1 on Date 4. Taxpayer intended to determine the estimated cost of common
improvements with regard to the ten-taxable year horizon as defined in section 2.02 of
Rev. Proc. 92-29. Taxpayer attached the following to its return for the taxable year
ending Date 1: (i) a request to use the alternative cost method on a project-by-project
basis and (ii) a Form 921, Consent to Extend the Time to Assess Income Tax,
extending the period of limitation on the assessment of tax with respect to the use of the
alternative cost method on a project-by-project basis. Taxpayer failed to file a duplicate
of the request to use the alternative cost method with the A director for the region of its
principal place of business on or before the due date of the return (including extensions)
for the taxable year ending Date 1. Taxpayer’s C completed the duplicate request, but
failed to timely mail it. Taxpayer was in the process of D at the time the request was
due and inadvertently misplaced the request. Taxpayer’s C discovered this oversight
on Date 5.

Taxpayer represents that, other than timely filing a duplicate copy of the request with
the A director, it qualifies to use the alternative cost method.
LAW
Rev. Proc. 92-29, 1992-1 C.B. 748 provides rules for the treatment of common
improvement costs and an “automatic procedure” for developers to follow to use the
alternative cost method. Generally, consent to use that method is conditioned on the
following:
(1) The developer must be contractually obligated or required by law to provide the
common improvements, and the cost of the common improvements must not be
properly recoverable through depreciation by the developer.
(2) The developer must file a request to use the alternative cost method on a project-
by-project basis in accordance with the procedures set forth in section 6 of Rev.
Proc. 92-29. These procedures include a requirement to file the request with the
district director for the internal revenue district in which is located the principal
place of business of the person required to make the return on or before the due
date of the developer’s original federal income tax return (determined with regard
to extensions of time) for the taxable year in which the first benefitted property in
the project is sold.

(3) The developer must sign a consent extending the period of limitation on the
assessment of income tax with respect to the use of the alternative cost method
on a project-by-project basis as described in section 7 of Rev. Proc. 92-29.
(4) The developer must file an annual statement for each project for which the
developer has received permission to use the alternative cost method in
accordance with section 8 of Rev. Proc. 92-29.
(5) The developer must file a supplemental request for each project if required
pursuant to section 9 of Rev. Proc. 92.29.
Taxpayer requests permission with this ruling request to file a copy of the request to
use the alternative cost method with the A director for the region of its principal place of
business.
Section 301.9100-1(c) provides that the Commissioner has 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. Section 301.9100-1(b) defines a "regulatory
election" as an election whose due date is prescribed by a regulation published in the
Federal Register, or a revenue ruling, revenue procedure, notice or announcement
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 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 extensions of time for regulatory
elections (other than automatic changes covered under section 301.9100-2) will be
granted when the taxpayer provides evidence (including affidavits described in the
regulations) to establish to the satisfaction of the Commissioner that the taxpayer acted
reasonably and in good faith, and that granting relief will not prejudice the interests of
the Government.
Section 301.9100-3(b)(1) provides that a taxpayer will be deemed to have acted
reasonably and in good faith if the taxpayer --
(i) requests relief before the failure to make the regulatory election is discovered by
the Internal Revenue Service (IRS);
(ii) failed to make the election because of intervening events beyond the taxpayer's
control;
(iii) failed to make the election because, after exercising reasonable diligence, the
taxpayer was unaware of the necessity for the election;
(iv) reasonably relied on the written advice of the IRS; or
(v) reasonably relied on a qualified tax professional, and the tax professional failed
to make, or advise the taxpayer to make, the election.

Section 301.9100-3(b)(3) provides that a taxpayer will not be considered to have
acted reasonably and in good faith if the taxpayer --
(i) seeks to alter a return position for which an accuracy-related penalty has been or
could be imposed under § 6662 at the time the taxpayer requests relief and the new
position requires or permits a regulatory election for which relief is requested
(ii) was informed in all material respects of the required election and related tax
consequences, but chose not to file the election; or
(iii) uses hindsight in requesting relief. If specific facts have changed since the
original deadline that make the election advantageous to a taxpayer, the IRS will not
ordinarily grant relief.
Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable
extension of time to make a regulatory election only when the interests of the
Government will not be prejudiced by the granting of relief. The interests of the
Government are prejudiced if granting relief would result in a taxpayer having a lower
tax liability in the aggregate for all taxable years affected by the election than the
taxpayer would have had if the election had been timely made. The interests of the
Government are ordinarily prejudiced if the taxable year in which the regulatory election
should have been made or any taxable 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 this
section.
Section 301.9100-3(c)(2) provides special rules for accounting method regulatory
elections. Section 301.9100-3(c)(2) provides that the interests of the Government are
deemed prejudiced, except in unusual or compelling circumstances, if the accounting
method regulatory election for which relief is requested is subject to the advance
consent procedures for method changes, requires a § 481(a) adjustment, would permit
a change from an impermissible method of accounting that is an issue under
consideration by examination or in any other setting, and the change would provide a
more favorable method or more favorable terms and conditions than if the change were
made as part of an examination, or provides a more favorable method of accounting or
more favorable terms and conditions if the election is made by a certain date or taxable
year.
RULING
Based upon our analysis of the facts and representations provided, Taxpayer acted
reasonably and in good faith, and granting relief will not prejudice the interests of the
Government. Therefore, the requirements of §§ 301.9100-1 and 301.9100-3 have been
met.
Taxpayer is granted an extension of 60 days from the date of this ruling to file the
copy of the request to use the alternative cost method with the A director for the region
of its principal place of business for its taxable year ending Date 1.

CAVEATS
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. No opinion is expressed as to the federal tax treatment of the transaction
under any other provisions of the Internal Revenue Code and the Treasury Regulations
that may be applicable or under any other general principles of federal income taxation.
This letter ruling is only applicable to matters under our jurisdiction. See Rev. Proc.
2018-1, 2018-1 I.R.B. 1, 13-14, Section 3. No opinion is expressed as to the tax
treatment of any conditions existing at the time of, or effects resulting from, the
transaction that are not specifically covered by the above ruling. In particular, no
opinion is expressed as to whether Taxpayer qualifies to use the alternative cost
method.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.
A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.
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, it is subject to verification on
examination.
Enclosed is a copy of this letter ruling showing the deletions proposed to be made in
the letter when it is disclosed under § 6110.
We are sending a copy of this letter to the appropriate operating division director.
Sincerely,

                                   ______________________________
                                   Bridget E. Tombul
                                   Branch Chief, Branch 2
                                   Office of the Associate Chief Counsel
                                   (Income Tax & Accounting-)

Enc. Copy for § 6110 purposes