Joint filers receive 30 days to make late mixed straddle account elections

Plain-English summary

An individual and spouse requested permission to make late mixed straddle account elections for four tax years. The individual had traded exchange-traded options, offsetting positions, and section 1256 contracts, but their former accounting firm did not advise them about the election or its deadline. A new accounting firm discovered the missed elections and explained the available reasonable-cause relief. The IRS concluded that the taxpayers had shown reasonable cause and granted 30 days to make the elections on Form 6781. The ruling did not decide whether the taxpayers' designated class of trading activities was permissible.

Ruling snapshot

• Question: May the joint filers make mixed straddle account elections after the deadlines for four tax years?
• Outcome: Approved, with 30 days to make the elections
• Key authorities: IRC § 1092(b); Temp. Treas. Reg. § 1.1092(b)-4T

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202446010 Third Party Communication: None
Release Date: 11/15/2024 Date of Communication: Not Applicable
Index Number: 1092.00-00, 1092.05-00,
1092.05-02 Person To Contact:
-----------------------------------,
------------------------------------- ID No. -----------------
------------------------ Telephone Number:
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Refer Reply To:
CC:FIP:01
PLR-107253-24
Date:
August 08, 2024

Legend:
Taxpayer = ------------------------------------------------------------------------------
----------------------------
Taxpayer’s Spouse = ------------------------------------------------------------------------------
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Year 1 = -------
Year 2 = -------
Year 3 = -------
Year 4 = --------
Year 5 = -------
Year 6 = -------
Month 1 = --------------
Accounting Firm 1 = ------------------------------
Accounting Firm 2 = -------------------------------------
Law Firm = ---------------------

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

   This is in reply to a letter dated April 2, 2024, and supplemental correspondence,

submitted on behalf of Taxpayer and Taxpayer’s Spouse (together, the “Taxpayers”).
Taxpayers request an extension of time to file an election pursuant to section 1092(b) of
the Internal Revenue Code (the “Code”) and section 1.1092(b)-4T(f) of the Temporary
Income Tax Regulations (a “mixed straddle account election”).

PLR-107253-24 2

                                      FACTS

 Taxpayer is an individual who files federal income tax returns jointly with

Taxpayer’s Spouse.

   Beginning in Year 1, Taxpayer entered into a series of transactions for

Taxpayer’s personal benefit whereby Taxpayer purchased and sold exchange-traded
options while simultaneously holding offsetting positions (the “Trading Activity”).
Taxpayer’s Trading Activity specifically focuses on straddle positions and section 1256
contracts. In Year 2 and Year 3, the volume of Taxpayer’s Trading Activity, particularly
Taxpayer’s straddle positions, increased significantly. Taxpayer has continued to
engage in the Trading Activity through Year 6.

    Taxpayer engaged Accounting Firm 1 for tax consulting and tax return

preparation services. Accounting Firm 1 identified itself as having expertise in individual
income tax return preparation and taxation and had assisted Taxpayer in the past with
the federal income tax nuances regarding Taxpayer’s tax planning. Taxpayer had no
previous experience with mixed straddle account elections and relied on Accounting
Firm 1’s expertise and advice. Accounting Firm 1 was aware of Taxpayer’s Trading
Activity and never advised Taxpayer on the ability to make mixed straddle account
elections under section 1.1092(b)-4T(f) or the procedures to do so.

  In Year 3, Taxpayer was informed that Accounting Firm 1 would be sold.

Taxpayer represents that while Taxpayer immediately began searching for a new
accounting firm, due to the COVID-19 pandemic, Taxpayer was unable to establish a
new business relationship with an accounting firm.

   In Month 1, Taxpayer engaged Accounting Firm 2 for tax return preparation and

accounting services. While conducting due diligence, Accounting Firm 2 uncovered that
Accounting Firm 1 had failed to inform Taxpayer of the availability of the mixed straddle
account election and had failed to make the mixed straddle account elections for Year
2, Year 3, Year 4. Accounting Firm 2 also informed the Taxpayer that while 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 the timely elections. Subsequently, Taxpayer engaged Law Firm to assist
Accounting Firm 2 to request this extension of time to file the late mixed straddle
account elections under section 1.1092(b)-4T(f) for Year 2, Year 3, Year 4, and Year 5.
Taxpayer represents that Taxpayers filed a mixed straddle account election on the Form
6781, Gains and Losses From Section 1256 Contracts and Straddles for Year 6, with
their Form 4868, Application for Automatic Extension of Time To File U.S. Individual
Income Tax Return for Year 5.

  Consequently, Taxpayers request an extension of time to file mixed straddle

account elections under section 1.1092(b)-4T(f) for Year 2, Year 3, Year 4, and Year 5.

PLR-107253-24 3

                              LAW AND ANALYSIS

    Section 1.1092(b)-4T(a) generally permits a taxpayer to elect (in accordance with

section 1.1092(b)-4T(f)) 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 taxpayer
must make the election with respect to the new class of activities 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. As 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.

                                 CONCLUSION

   Based on the facts and representations submitted, we conclude that Taxpayers

have shown reasonable cause for failing to make timely mixed straddle account
elections under section 1.1092(b)-4T(f) for Year 2, Year 3, Year 4, and Year 5.
Therefore, we grant Taxpayers’ request for an extension of time to make these mixed
straddle account elections under section 1.1092(b)-4T(f)(1) for Year 2, Year 3, Year 4,
and Year 5. This extension will expire 30 days from the date of this letter. The mixed
straddle account 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
Taxpayers’ 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

PLR-107253-24 4

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 Trading Activity.
Specifically, no opinion is expressed concerning whether the positions designated by
Taxpayers 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, a copy of this

letter is being sent to your authorized representative.

                                                    Sincerely,


                                                    ______________________________
                                                    Vanessa Mekpong
                                                    Assistant to the Branch Chief, Branch 1
                                                    Office of Associate Chief Counsel
                                                    (Financial Institutions & Products)

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