Securities-trading partnership gets extra time to make a late "mixed straddle account" election after a tax-software glitch

Plain-English summary

A partnership that trades securities regularly makes a "mixed straddle account"
election, which is a way to net gains and losses on offsetting positions under
the Section 1092 straddle rules. The election has to be made by the due date of
the prior year's return. This year the partnership missed it: its accountant used
tax software that, after an update, moved the checkbox for attaching the election
to an earlier screen, so the election form never got transmitted with the
extension. The partnership asked the IRS to let it make the election late. The
governing regulation lets the IRS accept a late mixed straddle account election
if the taxpayer had "reasonable cause" (the general Section 301.9100-3 relief
rules do not apply here because this regulation has its own late-election
standard). The IRS found reasonable cause and granted a 30-day window to make
the election. The IRS did not opine on whether the designated class of activities
was itself a permissible one.

Ruling snapshot

• Question: Did the partnership have reasonable cause to make a late mixed
  straddle account election under Treas. Reg. § 1.1092(b)-4T(f)(1)?
• Outcome: Approved (reasonable cause found; 30-day extension to make the
  election)
• Key authorities: IRC § 1092; Treas. Reg. § 1.1092(b)-4T(f)

Full text (IRS public release)

 Internal Revenue Service                                         Department of the Treasury
                                                                  Washington, DC 20224

 Number: 202210009                                                Third Party Communication: None
 Release Date: 3/11/2022                                          Date of Communication: Not Applicable
 Index Number: 1092.05-00
                                                                  Person To Contact:
 ----------------------                                           ----------------------, ID No. -----------------
 ---------------------                                            Telephone Number:
 ----------------------------                                     --------------------
 ---------------------------------------                          Refer Reply To:
 ----------------------------                                     CC:FIP:B02
 ---------------------------                                      PLR-113571-21
                                                                  Date:
                                                                  December 15, 2021




Legend:

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

Accountant                =        -------------------------

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

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

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

Year 1                    =        -------

Year 2                    =        -------

Year 3                    =        -------

Year 4                    =        -------

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


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

       This is in reply to a letter dated June 3, 2021, requesting 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.
PLR-113571-21                                2

                                         FACTS

       Taxpayer is a partnership for federal income tax purposes and is engaged in the
business of trading in securities. Taxpayer represents that 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.

       Since Year 3, Taxpayer has engaged a third-party tax professional, Accountant,
to provide tax return preparation services for Taxpayer and its affiliated entities,
including the filing of related extensions and any attendant elections to be attached
thereto. As in years past, Taxpayer reminded Accountant throughout the year and
immediately prior to the time for filing Taxpayer's extension for Taxpayer's Year 4 tax
return regarding the need to make the Election for Year 2 by the due date of Date 2.

        As part of the preparation of Taxpayer's application for extension for filing its
Year 4 tax return, a senior employee of Accountant prepared the Election form, Form
6781, Gains and Losses from Section 1256 Contracts and Straddles, and the statement
required to be attached to the form. The materials were subsequently reviewed by
management of Accountant. Accountant utilizes Software for tax preparation and filing.
Previous versions of Software prompted users to attach the Election to an extension to
file by checking a box on a specific screen within the sequential displays. Due to
significant tax law updates, Software was updated in Year 4, moving the checkbox to
attach the Election form to a previous screen within the filing process. Not realizing the
change, and expecting the checkbox to be in the same sequence, the senior employee
of Accountant mistakenly assumed that the absence of the checkbox meant that the
Election form would be automatically attached to the extension without checking a box.
Management of Accountant reviewed the overall extension package but did not realize
that the correct box was not checked and the Election form would not be attached or
transmitted with the electronic filing.

      On Date 3, during a routine review, management of Accountant discovered that
no Election had been filed for Year 2 and notified Taxpayer who now seeks
administrative relief for the Election.

                                  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
PLR-113571-21                                 3

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 U.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 Code or
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.
PLR-113571-21                                 4

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



                                           Sincerely,


                                           Matthew P. Howard
                                           Senior Counsel, Branch 2
                                           Office of the Associate Chief Counsel
                                           (Financial Institutions and Products)




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