Late mixed straddle account elections allowed

Plain-English summary

An individual traded exchange-listed put options while holding interests in the same publicly traded trust, creating potential mixed straddles. The taxpayer's return-preparation firm learned of the trading but did not explain the option to establish mixed straddle accounts or the required election procedure. A later accounting firm identified the missed elections for two tax years and sought late-election relief. The temporary regulations permit a late election when the IRS finds reasonable cause, and their specific rule applies instead of the general regulatory-election relief rules. The IRS found reasonable cause and granted 30 days to make both elections on Form 6781 with the official having audit jurisdiction.

Ruling snapshot

• Question: Could the taxpayer make late mixed straddle account elections for two years after the original adviser failed to explain them?
• Outcome: Approved, with 30 days to elect
• Key authorities: Temp. Treas. Reg. § 1.1092(b)-4T(f); Form 6781

Full text (IRS public release)

 Internal Revenue Service                                     Department of the Treasury
                                                              Washington, DC 20224

 Number: 202344011                                            Third Party Communication: None
 Release Date: 11/3/2023                                      Date of Communication: Not Applicable
 Index Number: 1092.05-00
                                                              Person To Contact:
 --------------------                                         ------------------, ID No. -----------------
 ------------------------                                     Telephone Number:
 ---------------------------------------                      -------------------
                                                              Refer Reply To:
                                                              CC:FIP:B02
                                                              PLR-104048-23
                                                              Date:
                                                              August 01, 2023




Legend

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

Month 1                            =       --------------

Month 2                            =       -----------------------

Month 3                            =       ---------------------

Date                               =       ---------------------------

Year 1                             =       -------

Year 2                             =       -------

Tax Firm                           =       ---------------------------

Accounting Firm                    =       ---------------------

State                              =       -------------

PLR-104048-23                                2


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

       This is in reply to a letter dated February 17, 2023, requesting an extension of
time for Taxpayer to make mixed straddle account elections under section 1.1092(b)-
4T(f)(1) of the Temporary Income Tax Regulations for Year 1 and Year 2.

                                         FACTS

     Taxpayer is an individual who files federal income tax returns jointly with
Taxpayer’s spouse.

       Beginning in Month 1, Taxpayer entered into a series of transactions for
Taxpayer’s personal benefit whereby Taxpayer purchased and sold exchange-traded
put options with respect to a publicly-traded trust while simultaneously holding beneficial
interests in the same publicly-traded trust. Taxpayer disposed of all of Taxpayer’s
positions entered into as part of these transactions by Date.

       Taxpayer engaged Tax Firm, a State tax return preparation firm, for tax
consulting and tax return preparation services. Tax Firm identifies itself as having
experience with individual income taxation and has assisted Taxpayer in the past with
the federal income tax implications of Taxpayer’s individual investments. Taxpayer had
no previous knowledge of mixed straddle accounts and relied on the guidance and
advice of Tax Firm. Taxpayer did not consult with Tax Firm prior to commencing the
series of transactions described above.

        Taxpayer and Taxpayer’s spouse filed Form 4868, Application for Automatic
Extension of time to File U.S. Individual Income Tax Return, for Year 1. When
Taxpayer met with Tax Firm in Month 2 to discuss the preparation of Taxpayer’s tax
return for Year 1, Taxpayer became aware of the tax treatment of Taxpayer’s
transactions. However, although Tax Firm became aware of Taxpayer’s trading
activities at that time, Tax Firm did not inform Taxpayer of the ability to make mixed
straddle account elections under section 1.1092(b)-4T or the procedures to do so.

        Taxpayer subsequently became dissatisfied with Tax Firm and engaged
Accounting Firm in Month 3 to provide technical advice regarding the proper tax
treatment for Taxpayer’s transactions. Accounting Firm advised Taxpayer that mixed
straddle account elections could have been made for Year 1 and Year 2. Accounting
Firm also informed Taxpayer that although the deadline had passed to make the mixed
straddle account elections for those years, late election relief may be available if
Taxpayer could establish reasonable cause for failing to make timely elections.
Consequently, Taxpayer engaged Accounting Firm to request this extension of time to
file elections under section 1.1092(b)-4T(f) for Year 1 and Year 2.

PLR-104048-23                                 3

                                  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 these late mixed straddle account elections.

       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, Gains and Losses From Section
1256 Contracts and Straddles.

                                      CONCLUSION

       Based on the facts and representations submitted, we conclude that Taxpayer
has shown reasonable cause for failing to timely make the elections under
section 1.1092(b)-4T(f) for Year 1 and Year 2. Therefore, we grant Taxpayer’s request
for an extension of time to make the mixed straddle account elections under section
1.1092(b)-4T(f)(1) for Year 1 and Year 2. This extension will expire 30 days from the
date of this letter. The elections 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

PLR-104048-23                                             4

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). Furthermore,
no opinion is expressed concerning the timeliness of the filing of Taxpayer’s federal tax
returns for Year 1 and Year 2. Additionally, this letter does not relieve Taxpayer of any
penalties that may be assessed under section 6651 or any other section of the Code, or
any interest that may accrue thereon.

      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, a copy of this
letter is being sent to your authorized representative.

                                                      Sincerely,



                                                      Andrea M. Hoffenson
                                                      Senior Technician Reviewer, Branch 3
                                                      Office of the Associate Chief Counsel
                                                      (Financial Institutions and Products)




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