IRS gives an estate 120 more days to make the "65-day rule" election for a distribution to a trust

Plain-English summary

Under the "65-day rule" in section 663(b), an estate or trust can elect to treat a distribution made within the first 65 days of a tax year as if it had been made on the last day of the prior year. That lets the fiduciary shift the income carried out by the distribution back one year, which can help balance income between the entity and its beneficiaries. The election must be made on a timely filed return. Here an estate made a distribution to a trust within the first 65 days of "Year 2" and intended to treat it as paid on the last day of "Year 1," but failed to make the election on time due to inadvertence. The estate asked the IRS for an extension under Treas. Reg. § 301.9100-3. The IRS concluded the estate acted reasonably and in good faith and granted 120 days from the date of the letter to make the section 663(b) election by filing the necessary returns or amended returns. The IRS expressed no opinion on whether the distribution was properly paid or credited. This is routine 9100 relief for a missed election.

Ruling snapshot

• Question: May an estate get an extension under Treas. Reg. § 301.9100-3 to make a late section 663(b) election to treat an early-year distribution as made in the prior year?
• Outcome: Approved (120-day extension granted)
• Key authorities: IRC § 663(b); Treas. Reg. § 1.663(b)-2; Treas. Reg. §§ 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202332010                                             Third Party Communication: None
 Release Date: 8/11/2023                                       Date of Communication: Not Applicable

 Index Number: 9100.12-00                                      Person To Contact:
                                                               --------------------------, ID No. -------------
 ----------------------------------------                      Telephone Number:
 ----------------------------------                            --------------------
 ----------------------------                                  Refer Reply To:
 --------------------------------                              CC:PSI:B01
 -----------------------------------                           PLR-122364-22
                                                               Date:
                                                               May 16, 2023




                                                   LEGEND

 Estate          =       -----------------------------------------------------------------------------------------
                         --------------------------------

 Trust           =       -----------------------------------------------------------------------------------------
                         --------------------------------

 Year 1          =       -------

 Year 2          =       -------




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

       This letter responds to a letter dated November 7, 2022, and subsequent
correspondence, submitted on behalf of Estate by its authorized representatives,
requesting that the Service grant Estate an extension of time pursuant to § 301.9100-3
of the Procedure and Administration Regulations to make an election under § 663(b) of
the Internal Revenue Code.

                                                    FACTS

        According to the information submitted, Estate files its federal income tax return
on a calendar year basis. Estate made a distribution to Trust (the “Distribution”) within
the first sixty-five days of its Year 2 taxable year and intended the Distribution be
considered as paid or credited on the last day of its Year 1 taxable year as permitted
PLR-122364-22                                  2

under § 663(b). However, due to inadvertence, Estate’s § 663(b) election was not
timely filed.

                                   LAW AND ANALYSIS

       Section 663(b)(1) provides that in general, if within the first 65 days of any
taxable year of an estate or trust, an amount is properly paid or credited, such amount
shall be considered paid or credited on the last day of the preceding taxable year.
Section 663(b)(2) provides that § 663(b)(1) shall apply with respect to any taxable year
of an estate or a trust only if the executor of such estate or the fiduciary of such trust (as
the case may be) elections, in such manner and at such time as the Secretary
prescribed by regulations, to have § 663(b)(1) apply for such taxable year.

        Section 1.663(b)-2(a)(1) of the Income Tax Regulations provides that if a trust
return is required to be filed for the taxable year of the trust for which the election is
made, the election shall be made in the appropriate place on such return. The election
under § 1.663(b)-2(a)(1) shall be made not later than the time prescribed by law for
filing such return (including extensions thereof). Such election shall become irrevocable
after the last day prescribed for making it.

        Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a
regulatory election, or a statutory election (but not more than 6 months except in the
case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G,
H, and I. Section 301.9100-1(b) defines the term “regulatory election” as including an
election whose due date is prescribed by a regulation published in the Federal Register.

        Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3
will be granted when the taxpayer provides the evidence (including affidavits described
in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the
taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the
interests of the Government.

                                       CONCLUSION

       Based solely on the facts submitted and representations made, we conclude that
Estate has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result,
Estate is granted an extension of time of 120 days from the date of this letter to file an
election under § 663(b). The election should be made by filing income tax returns (or
amended returns) for Year 1 and Year 2, as necessary, to include the election and
properly report the tax consequences of the Distribution in a manner consistent with the
election having been made. The income tax return(s) must be filed within the 120-day
period following the date of this letter with the service center where the Estate files its
returns. A copy of this letter should be attached to each income tax return.
PLR-122364-22                                  3

        Except as specifically set forth above, we express or imply no opinion concerning
the federal tax consequences of the facts described above under any other provision of
the Code. In addition, § 301.9100-1(a) provides that the granting of an extension of
time for making an election is not a determination that the taxpayer is otherwise eligible
to make the election. Finally, we express or imply no opinion concerning whether the
distributions were properly paid or credited.

      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 ruling request, it is subject to verification on
examination.

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

       Pursuant to a power of attorney on file with this office, a copy of this letter is
being sent to Estate’s authorized representatives.


                                        Sincerely,

                                        Holly Porter
                                        Associate Chief Counsel
                                        (Passthroughs & Special Industries)



                                    By: _/s/__________________________
                                        Jennifer N. Keeney
                                        Senior Counsel, Branch 1
                                        Office of the Associate Chief Counsel
                                        (Passthroughs & Special Industries)




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