IRS grants extra time for mixed straddle account election

Plain-English summary

A partnership engaged in securities trading intended to elect mixed straddle account treatment but missed the filing deadline. Its tax department was disrupted by the COVID-19 work-from-home transition, and its tax software still showed an outdated deadline after a statutory change moved the partnership return due date. The taxpayer discovered the missed election, corrected the software, and asked for relief under the specific reasonable-cause rule in Treas. Reg. § 1.1092(b)-4T(f)(1). The IRS found reasonable cause and granted 30 days to make the election in the prescribed manner. The ruling did not decide whether the taxpayer's designated class of activities was otherwise permissible.

Ruling snapshot

• Question: Did the partnership have reasonable cause to receive extra time for a mixed straddle account election?
• Outcome: Approved
• Key authorities: Treas. Reg. § 1.1092(b)-4T; Treas. Reg. § 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

Number: 202107006                                               Third Party Communication: None
Release Date: 2/19/2021                                         Date of Communication: Not Applicable
Index Number: 1092.05-00
                                                                Person To Contact:
-----------------                                               ------------------, ID No. -----------------
---------------------------------------------------             Telephone Number:
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--------------------------                                      Refer Reply To:
----------                                                      CC:FIP:2
---------------------------------                               PLR-112075-20
-----------------------------                                   Date:
                                                                November 17, 2020

Legend:

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

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

Date 2            =        ---------------------

Date 3            =        -----------------

Year 1            =        -------

Year 2            =        -------

Software          =        ---------------------------------

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

         This is in reply to a request for a private letter ruling, dated May 19, 2020, and
supplemental correspondence, seeking an extension of time for Taxpayer to make a
mixed straddle account election under section 1.1092(b)-4T(f)(1) of the Temporary
Income Tax Regulations (“Election”) to establish one or more mixed straddle accounts
for its taxable year ending Date 1.

                                          FACTS

        Taxpayer is treated as a partnership for federal income tax purposes and is
engaged in the business of trading in securities. Taxpayer represents that, through
entities disregarded for federal income tax purposes, it has been entering into straddles
and making timely Elections since Year 1. However, Taxpayer failed to make the
Election for Year 2 by the due date of Date 2.

          Taxpayer has an internal tax department that provides tax and related services to
Taxpayer including the preparation and filing of federal and state tax returns for
Taxpayer and affiliated entities. Taxpayer’s internal tax department uses Software to
track the various federal, state, local, and foreign tax filing obligations for Taxpayer and
its affiliates.

        Taxpayer represents that it intended to make the Election to establish one or
more mixed straddle accounts for Year 2 by Date 2; however, its business has been
substantially disrupted by the global COVID-19 pandemic. Three days prior to Date 2,
Taxpayer implemented an immediately effective, mandatory work from home policy for
all non-essential employees. Virtually all the members of the tax department
immediately began working from home, which significantly disrupted the performance of
their professional duties.

        In addition to the disruptions caused by the COVID-19 pandemic, recent statutory
changes also contributed to Taxpayer’s failure to timely file the Election. Section 2006
of the Surface Transportation and Veterans Health Care Choice Improvement Act of
2015, Pub. L. No. 114-41, 129 Stat. 443, 457 (2015), (“Surface Act”) changed the due
date for filing a partnership return from the fifteenth day of the fourth month of the
taxable year to the fifteenth day of the third month of the taxable year. Following the
enactment of the Surface Act, Software used by Taxpayer’s tax department was
updated to reflect the new filing date for Form 1065 (U.S. Return of Partnership
Income), but the corresponding due date for filing Form 6781 (Gains and Losses From
Section 1256 Contracts and Straddles) was inadvertently not updated. For the taxable
years occurring between the enactment of the Surface Act and Year 2, Taxpayer filed
the Elections before the due date of its federal income tax returns, and thus did not rely
on the due date that was recorded in Software. However, because of the business
disruptions occurring in Year 2, the Election was not filed before the due date of
Taxpayer’s federal income tax return. This in turn resulted in Taxpayer missing the
filing deadline for the Election because Software had not been properly updated to
reflect the new, correct due date for the Election.

       On Date 3, Taxpayer discovered that no Election had been filed for Year 2.
Following this discovery, Taxpayer’s internal tax department corrected the inaccurate
due date information for making the Election in Software to prevent a similar mistake
from being made in the future.

                                  LAW AND ANALYSIS

      Section 1.1092(b)-4T(a) generally permits a taxpayer to elect (in accordance with
paragraph (f) of section 1.1092(b)-4T) to establish one or more “mixed straddle
accounts.” Section 1.1092(b)-4T(b) defines a mixed straddle account to mean an
account for determining gains and losses from all positions held as capital assets in a
designated class of activities by the taxpayer at the time the taxpayer elects to establish
a mixed straddle account.

        Section 1.1092(b)-4T(f)(1) generally provides that, except as otherwise provided,
the election to establish one or more mixed straddle accounts for a taxable year must
be made by the due date (without regard to any extensions) of the taxpayer's income
tax return for the immediately preceding taxable year (or part thereof). Section
1.1092(b)-4T(f)(1) further provides that if a taxpayer begins trading or investing in
positions in a new class of activities during a taxable year, the election with respect to
the new class of activities must be made by the taxpayer by the later of the due date of
the taxpayer’s income tax return for the immediately preceding taxable year (without
regard to any extensions), or 60 days after the first mixed straddle in the new class of
activities is entered into.

       Section 1.1092(b)-4T(f)(1) also provides that if an election is made after the time
specified above, the election will be permitted only if the Commissioner concludes that
the taxpayer had reasonable cause for failing to make a timely election. Because
section 1.1092(b)-4T(f)(1) provides specific guidance about making a late mixed
straddle account election, the rules generally applicable to late elections described in
section 301.9100-3 do not apply to this late mixed straddle account election.

       Section 1.1092(b)-4T(f)(2) sets forth the manner for making the election,
including that the election is to be made on Form 6781.

                                     CONCLUSION

        Based on the facts and representations submitted, we conclude that Taxpayer
has shown reasonable cause for failing to timely make the Election. Therefore, we
grant Taxpayer’s request for an extension of time to make the Election for one or more
mixed straddle accounts for Year 2. This extension will expire 30 days from the date of
this letter. The Election must be made in the manner prescribed in
section 1.1092(b)-4T(f)(2) and filed with the Director having audit jurisdiction over
Taxpayer’s federal income tax return.

       Except as specifically ruled upon above, no opinion is expressed as to the tax
treatment of any transactions under the provisions of any other sections of the Internal
Revenue Code (“Code”) or Income Tax Regulations which may be applicable thereto, or
the tax treatment of any conditions existing at the time of or effects resulting from the
transaction. Specifically, no opinion is expressed concerning whether the positions
designated by Taxpayer as the class of activities is a permissible designation under
section 1.1092(b)-4T(b)(2).

      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.

        In accordance with the Power of Attorney on file with this office, copies of this
letter are being sent to your authorized representatives.

                                                      Sincerely,



                                                      Andrea M. Hoffenson
                                                      Chief, Branch 2
                                                      Office of the Associate Chief Counsel
                                                      (Financial Institutions and Products)




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