Late election granted to pass rehabilitation-credit expenditures to a tenant

Plain-English summary

The rehabilitation credit rewards owners who fix up certain older buildings. When a landlord owns the building but a tenant is the one that should claim the credit, tax rules let the landlord "elect" to pass the qualifying expenditures through to the tenant, but that election must be filed by the tax-return due date. Here a landlord (an LLC) rehabilitated a property and agreed to pass the credit to its tenant, then missed the deadline to file the pass-through election because of inadvertence. The taxpayer asked for an extension under the "9100 relief" rules, which let the IRS forgive a missed regulatory election when the taxpayer acted reasonably and in good faith and the government is not harmed. The IRS granted 120 days to make the election. The ruling does not decide whether the expenditures actually qualify for the credit, only that the late election is allowed.

Ruling snapshot

• Question: May a landlord that missed the deadline get more time to elect to pass its rehabilitation-credit expenditures through to its tenant?
• Outcome: approved
• Key authorities: IRC §§ 47, 50; Treas. Reg. §§ 1.48-4, 301.9100-1 and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202452010                                              Third Party Communication: None
 Release Date: 12/27/2024                                       Date of Communication: Not Applicable
 Index Number: 47.00-00, 50.00-00, 9100.00-
               00                                               Person To Contact:
                                                                --------------------, ID No. -----------------
 --------------------                                           Telephone Number:
 --------------------------------                               --------------------
 --------------------------                                     Refer Reply To:
 --------------------------------                               CC:PSI:B05
                                                                PLR-110211-24
 In Re: --------------------------------                        Date:
                                                                September 27, 2024




LEGEND:

Taxpayer          =         --------------------------------
--------------------------
Tenant            =         ----------------------------------------------------
--------------------------------------------------

Property          =         -------------------------------------------------------------------------------------------
----------
-----------------------------------------------------------------------------------------------------------------------

State             =        -------

Year X            =        -------

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

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

      This letter responds to your letter dated May 23, 2024, and subsequent
correspondence, submitted on behalf of Taxpayer requesting an extension of time
pursuant to § 301.9100-3 of the Procedure and Administration Regulations for Taxpayer
to make the election under § 1.48-4 of the Income Tax Regulations for Year X.
PLR-110211-24                                 2

                                          FACTS

       According to the information submitted and representations made, Taxpayer, a
limited liability company organized under the laws of State, owns Property. Taxpayer
rehabilitated Property in a manner that qualified for the rehabilitation credit under
section 47 of the Internal Revenue Code (“Code”). Tenant, a limited liability organized
under the laws of State, leases Property from Taxpayer.

       On Date, Taxpayer and Tenant entered into an agreement to pass through
Taxpayer’s qualified rehabilitation expenditures (QREs) relating to Property to Tenant.
The agreement required Taxpayer to file an election pursuant to § 1.48-4 on or before
the due date (including extensions) of Taxpayer’s federal income tax return for the
taxable year based on the date Property was placed in service. Taxpayer placed
Property in service in Year X. However, Taxpayer failed to timely make the election for
Year X, due to inadvertence.

       Neither Taxpayer nor Tenant claimed a rehabilitation credit based on the QREs
for Property placed in service in Year X. Further, Taxpayer has not made an election
under section 47(d)(5).

                                  LAW AND ANALYSIS

        Section 38(a) allows a credit for the taxable year in an amount equal to the sum
of (1) the business credit carryforwards carried to the taxable year, (2) the amount of the
current year business credit, plus (3) the business credit carrybacks carried to the
taxable year.

       Under § 38(b)(1), the amount of the current year business credit includes the
investment credit under section 46. The rehabilitation credit is a component of the
section 46 investment credit.

       Section 47(a)(1) provides for the purposes of section 46, for any taxable year
during the 5-year period beginning in the taxable year in which a qualified rehabilitation
building is placed in service, the rehabilitation credit for such year is an amount equal to
the ratable share of such year.

       Section 47(a)(2) defines the ratable share for any taxable year during the 5-year
period described in section 47(a)(1) as an amount equal to 20 percent of the qualified
rehabilitation expenditures with respect to any qualified rehabilitation building, as
allocated ratably to each year during the 5-year period.

      Section 47(b) provides that qualified rehabilitation expenditures with respect to
any qualified rehabilitation building are taken into account for the taxable year in which
such qualified rehabilitated building is placed in service.
PLR-110211-24                                 3

       Section 50(d)(5) makes applicable rules similar to the rules of former section
48(d) (relating to certain leased properties) as in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of 1990. Under former section 48(d)(1), a
person who is a lessor of property may (at such time, in such manner, and subject to
the conditions as are provided by regulations prescribed by the Secretary) elect with
respect to any new section 38 property (other than property described in former section
48(d)(4)) to treat the lessee as having acquired such property.

       Section 1.48-4(a)(1) allows a lessor of property to elect to treat the lessee of the
property as having purchased the property for purposes of the rehabilitation credit if the
conditions specified in § 1.48-4(a)(1)(i) through (v) are satisfied.

      Section 1.48-4(a)(1)(iv) requires a statement of election to treat the lessee as a
purchaser to be filed in the manner and within the time provided in § 1.48-4(f) or (g).

       Section 1.48-4(f)(1) states that the election of the lessor with respect to a
particular property (or properties) must be made by filing a statement with the lessee,
signed by the lessor and including the written consent of the lessee containing the
information specified in § 1.48-4(f)(1)(i) through (vii).

        Section 1.48-4(f)(2) provides that the § 1.48-4(f)(1) election statement must be
filed with the lessee on or before the due date (including extensions of time) of the
lessee’s return for the lessee’s taxable year during which possession of the property is
transferred to the lessee.

        Section 1.48-4(j) provides that the lessor and the lessee must keep as part of
their records the election statement referred to in § 1.48-4(f)(1) and that the lessor must
attach to its income tax return a summary statement of all property leased during its
taxable year with respect to which an election is made. The summary statement must
contain the following information: (1) the name, address, and taxpayer account number
of the lessor; and (2) in numerical account number order, each lessee’s account
number, name, and address, the estimated useful life category of the property (or, if
applicable, the estimated useful life expressed in years), and the basis or fair market
value of the property, whichever is applicable.

      Sections 301.9100-1, 301.9100-2, and 301.9100-3 of the Procedure and
Administration Regulations set forth the standards the Commissioner will use to
determine whether to grant an extension of time to make a regulatory extension.

       Section 301.9100-1(a) provides that an extension of time is available for
elections that a taxpayer is otherwise eligible to make. The granting of an extension of
time, however, is not a determination that the taxpayer is eligible to make the election.
PLR-110211-24                                 4

        Section 301.9100-1(b) provides that the term “election” includes an application
for relief in respect of tax and that the term “regulatory election” includes an election
whose due date is prescribed by a regulation published in the Federal Register.

       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 no more than six 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 301.9100-2 provides automatic extensions of time for making certain
elections.

        Section 301.9100-3 provides extensions of time for making elections that do not
meet the requirements of § 301.9100-2. A request for relief will be granted under
§ 301.9100-3 when the taxpayer provides evidence 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 and the representations submitted, the requirements of
§§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly, Taxpayer is granted
an extension of time of 120 days from the date of this letter to make an election under
§ 1.48-4(a) for Year X. For this purpose, Taxpayer must file a statement of election in
accordance with § 1.48-4(f). Further, Taxpayer must file an amended return for Year X,
attaching the summary statement required by § 1.48-4(j) and a copy of this letter. A
copy of this letter is enclosed for that purpose.

       Except as specifically set forth above, no opinion is expressed concerning the
federal tax consequences of the facts described above under any provisions of the
Code. In particular, no opinion is expressed on whether Taxpayer's rehabilitation
expenditures with respect to Property are qualified rehabilitation expenditures under
section 47, whether Taxpayer's rehabilitation of Property otherwise meets the
requirements under section 47, or on the applicability of the amendments to section 47
by Pub. L. 115-97, Sec. 13402. Further, no opinion is expressed on whether any of the
limited liability companies involved are partnerships for federal tax purposes, whether
any of the members of the limited liability companies are partners for federal tax
purposes, or whether the lease at issue is a lease for federal tax purposes.

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

       In accordance with a power of attorney on file with this office, a copy of this letter
is being sent to your authorized representative.
PLR-110211-24                                           5


      The ruling contained in this letter is based upon information submitted and
representations made by 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 request for ruling, it is subject to verification on examination.


                                                            Sincerely,



                                                            Holly Porter
                                                            Associate Chief Counsel
                                                            (Passthroughs and Special Industries)



                                                        By: _______________________________
                                                            Barbara J. Campbell
                                                            Senior Technician Reviewer, Branch 5
                                                            Office of Associate Chief Counsel
                                                            (Passthroughs and Special Industries)

Enclosures:
      Copy of this letter
      Copy for section 6110 purposes

Cc:
-----------------------------------------------------
--------------------------------------------------
-------------------------------------------
-------------------------------------------------

-------------------------
-------------------------------
--------------------------------------------------
------------------------------------
---------------------------------------------