Extension Granted to Make Taxable Entity Election

Third Party Communication: None

This letter is in response to a request for a private letter ruling dated May 6, 2013, submitted on your behalf by your authorized representative. Specifically, you have requested an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations for Taxpayer, a tax-exempt controlled entity under § 168(h)(6)(F)(iii) of the Internal Revenue Code to make an election under § 168(h)(6)(F)(ii) to not be treated as a tax-exempt controlled entity.

Taxpayer is the general partner of Partnership. Partnership's real property was placed in service in Tax Year, and Taxpayer filed a timely federal income tax return for Tax Year, but failed to make the § 168(h)(6)(F)(ii) election on that return. Taxpayer's failure to make the required § 168(h)(6)(F)(ii) election was discovered for the first time when evidence of such election was requested in the case of Related Partnership, which is also owned by Exempt Organization. However, from Affidavit 1, Affidavit 2, and the other materials submitted, it is clear that Taxpayer at all times intended to make the § 168(h)(6)(F)(ii) election to not be treated as a tax-exempt controlled entity. Affidavit 1 and Affidavit 2 further make it clear that Taxpayer's return preparer was unaware that an affirmative election statement was required to be attached to the Taxpayer's federal tax return for Tax Year. Upon discovering its failure, Taxpayer promptly sought an extension of time in which to file the § 168(h)(6)(F)(ii) election.

Taxpayer makes the following representations. Notwithstanding omitting the statement of the § 168(h)(6)(F)(ii) from the tax return for Tax Year, every tax return prepared and filed by Taxpayer reflects the same treatment as if the § 168(h)(6)(F)(ii) election had been made. Taxpayer is not under audit nor is being considered by an appeals officer or federal court for any tax year in which the § 168(h)(6)(F)(ii) election should have been made or for any tax year affected by that election. Taxpayer is not seeking to alter a return position for which an accuracy-related penalty has been or could be imposed under § 6662. Taxpayer is not using hindsight in requesting the relief sought. The requested relief will not result in a lower tax liability (in the aggregate for all tax years affected by the § 168(h)(6)(F)(ii) election) than Taxpayer would have had if the § 168(h)(6)(F)(ii) election had been timely made. Finally, although the period of limitations on assessment under § 6501(a) for Tax Year has expired, Taxpayer states its belief that the Government is not prejudiced in this case and thus § 9100 relief should be granted.

Section 168(h)(6)(A) provides that, for purposes of § 168(h), if any property which (but for this subparagraph) is not tax-exempt use property is owned by a partnership having both a tax-exempt entity and a nontax-exempt entity as partners and any allocation to the tax-exempt entity is not a qualified allocation, then an amount equal to such tax-exempt entity's proportionate share of such property is treated as tax-exempt use property.

Section 168(h)(6)(F)(i) provides generally that any tax-exempt controlled entity is treated as a tax-exempt entity for purposes of § 168(h)(6). Under § 168(h)(6)(F)(iii)(I), a "tax-exempt controlled entity" means any corporation (without regard to that subparagraph and § 168(h)(2)(E)) if 50 percent or more (in value) of the corporation's stock is held by one or more tax-exempt entities (other than a foreign person or entity). Section 168(h)(6)(E) applies similar rules in the case of tiered partnerships and other entities.

Under § 168(h)(6)(F)(ii), a tax-exempt controlled entity can elect not to be treated as a tax-exempt entity. Such an election is irrevocable and will bind all tax-exempt entities holding an interest in the tax-exempt controlled entity.

Under § 301.9100-7T(a)(2)(i) of the Procedure and Administration Regulations, a § 168(h)(6)(F)(ii) election must be made by the due date of the tax return for the first taxable year for which the election is to be effective. Section 301.9100-7T(a)(3) provides the manner in which the § 168(h)(6)(F)(ii) election is made.

Section 301.9100-1(c) provides that the Commissioner of Internal Revenue has discretion to grant a reasonable extension of time to make a regulatory election. Section 301.9100-1(b) defines the term "regulatory election" as including any election the due date for which is prescribed by a regulation. Because the due date of the § 168(h)(6)(F)(ii) election is prescribed in § 301.9100-7T, the § 168(h)(6)(F)(ii) election is a regulatory election.

Sections 301.9100-1 through 301.9100-3 provide the standards the Service 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 of time covered in § 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 granting relief will not prejudice the interests of the Government.

Section 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer --

Although the taxable year in which the § 168(h)(6)(F)(ii) election should have been made is closed under § 6501, the above representations support our conclusion that Taxpayer has acted reasonably and in good faith. Therefore, the interests of the Government will not be prejudiced by the granting of relief.

Pursuant to § 301.9100-7T(a)(3)(ii), a copy of this letter and the § 168(h)(6)(F)(ii) election statement also should be attached to the federal income tax returns of each of the tax-exempt shareholders or beneficiaries of Taxpayer.

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. Further, we express no opinion concerning the assessment of any interest, additions to tax, additional amounts or penalties for failure to file a timely income tax return with respect to any taxable year.

The ruling in this letter is based upon the information and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. Although this office has not verified any of the material submitted in support of the request for the ruling, it is subject to verification on examination.

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.

Enclosed is a copy of the letter showing the deletions proposed to be made when it is disclosed under § 6110. If you have any questions concerning this matter, please contact the individual whose name and telephone number appear at the top of the letter.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.