Late real-property election for advertising displays allowed

Plain-English summary

A partnership in an outdoor advertising business agreed during a partial sale to elect to treat its outdoor advertising displays as real property under section 1033(g)(3). Its accountant filed the partnership return without the intended election, and an adviser discovered the omission after receiving the filed return. The election can apply to rigid signs and billboards permanently affixed to land or structures, subject to limits for property on which certain investment-credit or expensing elections were used. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 45 days to file an amended return or administrative-adjustment request making the election.

Ruling snapshot

• Question: Could the partnership make a late election to treat outdoor advertising displays as real property?
• Outcome: Approved, with 45 days to file
• Key authorities: IRC § 1033(g)(3); Treas. Reg. §§ 1.1033(g)-1(b), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                  Department of the Treasury
                                                           Washington, DC 20224

 Number: 202344008                                         [Third Party Communication:
 Release Date: 11/3/2023                                   Date of Communication: Month DD, YYYY]
 Index Number: 1033.07-00, 9100.00-00
                                                           Person To Contact:
 -------------------                                       -----------------------, ID No. -----------------
 ------------------------------                            Telephone Number:
 -------------------------------------------------         --------------------
 ----------------------------                              Refer Reply To:
 ------------------------------------------------------    CC:ITA:5
 -----------------------------                             PLR-103298-23
                                                           Date:
                                                           August 10, 2023
 ----------------------------------------------------




                 TY:

Legend

 Taxpayer   = --------------------------------------------------------------------------------------------
              -------------------------
 State      = --------------
 Business   = ------------------------------------------------------------------
 Year       = -------------------------------------------------------------
 Purchaser = --------------------------------------------------------------------------------------------
              -------------------------
 %          = --------------
 Agreement = --------------------------------------------------------------------------------------------
              ---------------------
 Date 1     = -------------------------
 Date 2     = --------------------------
 Date 3     = -------------------------
 Date 4     = --------------------------
 Year 1     = -------
 Advisor    = -----------------------------------------
 Accountant = --------------------------------------


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

PLR-103298-23                                 2

This letter responds to a letter dated Date 1, submitted by Taxpayer’s authorized
representative, requesting an extension of time under sections 301.9100-1 and
301.9100-3 of the Income Tax Regulations, to make an election under Treas. Reg. §
1.1033(g)-1(b) to treat outdoor advertising displays as real property, effective for Year.

                                          FACTS

Taxpayer, a partnership, was formed under State law on Date 2 and engaged in
Business. In Year, partners sold % of Taxpayer to Purchaser. During the negotiations,
Taxpayer was informed by Advisor, that Taxpayer should make an election under
Internal Revenue Code (I.R.C.) § 1033(g)(3) and Treas. Reg. 1.1033(g)-1(b) for Year.
On Date 3, Taxpayer ratified an Agreement in which it agreed to make and have in
effect an election under I.R.C. § 1033(g)(3) and Treas. Reg. 1.1033(g)-1(b) for all
taxable periods ending after Date 3.

Accountant prepared and filed Taxpayer’s federal income tax return for Year. However,
Accountant inadvertently did not include the election under I.R.C. § 1033(g)(3) and
Treas. Reg. 1.1033(g)-1(b) as Taxpayer intended. Advisor received a copy of the
Taxpayer’s federal tax return for Year on Date 4 and informed Taxpayer of the fact that
the Year return did not contain the election intended by the Taxpayer.

                                 RULING REQUESTED

Taxpayer requests an extension of time under Treas. Reg. §§ 301.9100-1 and -3 to
make an election under Treas. Reg. 1.1033(g)-1(b) for Year.

                                  LAW AND ANALYSIS

Section 1033(g)(3)(A) of the Code provides that a taxpayer may elect, at such time
and in such manner as the Secretary may prescribe, to treat property which
constitutes an outdoor advertising display as real property for purposes of chapter 1
of the Code.

Section 1033(g)(3)(C) of the Code defines an outdoor advertising display as a rigidly
assembled sign, display, or device permanently affixed to the ground or permanently
attached to a building or other inherently permanent structure constituting, or used for
the display of, a commercial or other advertisement to the public. Highway billboards
affixed to the ground with wood or metal poles, pipes, or beams, with or without
concrete footings are outdoor advertising displays. Treas. Reg. § 1.1033(g)- 1(b)(3).

Section 1.1033(g)-1(b)(1) of the regulations provides, in pertinent part, that the election
is available for taxable years beginning after December 31, 1970. No election may be
made with respect to any property for which (i) the investment credit under section 38
has been claimed, or (ii) an election to expense certain depreciable business assets
under section 179(a) is in effect.

PLR-103298-23                                 3


Sections 301.9100-1 through 301.9100-3 provide the standards that the Commissioner
will use to determine whether to grant an extension of time to make a regulatory
election. Section 301.9100-3(a) provides that requests for extensions of time for
regulatory elections (other than automatic extensions covered in section 301.9100-2)
will be granted when the taxpayer provides evidence (including affidavits) to establish
that the taxpayer acted reasonably and in good faith and the grant of relief will not
prejudice the interests of the government.

Under section 301.9100-3(b), a taxpayer is deemed to have acted reasonably and in
good faith under a number of specified circumstances, including if the taxpayer requests
relief before the failure to make the regulatory election is discovered by the Service, or if
the taxpayer reasonably relied on a qualified tax professional, and the tax professional
failed to make, or advise the taxpayer to make, the election. However, a taxpayer is not
considered to have reasonably relied on a qualified tax professional if the taxpayer
knew or should have known that the professional was not competent to render advice
on the regulatory election or was not aware of all relevant facts.

In addition, section 301.9100-3(b)(3) provides that a taxpayer is deemed not 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 section 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 fully informed in all material respects of the required election and
               related tax consequences but chose not to make 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 Service will not ordinarily grant relief.

Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable
extension of time to make the regulatory election only when the interests of the
Government will not be prejudiced by the granting of relief.

Section 301.9100-3(c)(1)(i) provides that 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 (taking into account the time value of money).

Section 301.9100-3(c)(1)(ii) provides that the interests of the government are ordinarily
prejudiced if the taxable year in which the regulatory election should have been made or
any taxable year that would have been affected by the election had it been timely made

PLR-103298-23                                 4

are closed by the period of limitations on assessment under section 6501(a) before the
taxpayer’s receipt of a ruling granting relief under this section.

Based on the facts and information Taxpayer submitted and later supplemented and the
representations made, we conclude that Taxpayer has acted reasonably and in good
faith, and that the granting of relief would not prejudice the interests of the government.
Accordingly, based solely on all the facts and information submitted, and the
representations made in the ruling request and subsequently, we grant the taxpayer an
extension of 45 days from the date of this letter ruling to file an amended return, or an
Administrative Adjustment Request (whichever is appropriate), to make the election
under Treas. Reg. 1.1033(g)-1(b) for Year.

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by a penalty of perjury statement executed by an appropriate party. This
office has not verified any of the material submitted in support of the request for a ruling.
However, as part of an examination process, the Service may verify the factual
information, representations, and other data submitted.

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. Specifically, we express no opinion, either express or implied, concerning
whether Taxpayer meets the requirements under section 1033(g)(3) and the regulations
thereunder to make the election.

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. 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.

PLR-103298-23                                  5

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to Taxpayer’s authorized representatives.


                                       Sincerely,



                                       John M. Aramburu
                                       Senior Counsel, Branch 5
                                       Office of Associate Chief Counsel
                                       (Income Tax and Accounting)


 cc: --------------
     ---------------