Consent Granted to Make Retroactive QEF Elections

[Third Party Communication: * * *
Date of Communication: Month DD, YYYY]
Person To Contact: * * *, ID No. * * *
Telephone Number: * * *

Index Number: 1295.02-02
Release Date: 6/21/2019

Date: March 22, 2019

Refer Reply To: CC:INTL:B02 - PLR-102820-16

TY: * * *

LEGEND:

Taxpayer = * * *
X% = * * *
FC1 = * * *
Y% = * * *
FC2 = * * *
Year 1 = * * *
Year 2 = * * *
Country X = * * *
Accountant A = * * *
Attorney B = * * *

Dear * * *:

This is in response to a letter submitted on Taxpayer's behalf by an authorized representative requesting the consent of the Commissioner of the Internal Revenue Service (“Commissioner”) to make a retroactive qualified electing fund (“QEF”) election under section 1295(b) of the Internal Revenue Code (the “Code”) and Treas. Reg. §1.1295-3(f) with respect to Taxpayer's investments in FC1 and FC2 (collectively referred to as “FCs”) for Year 1.

The rulings contained in this letter are based upon information and representations submitted by the 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 rulings, it is subject to verification on examination.

FACTS

Taxpayer is a citizen of Country X and became a resident for U.S. income tax purposes in Year 1. Taxpayer owns X% of FC1 and Y% of FC2. FC1 and FC2 are corporations organized under the laws of Country X. FC1 and FC2 were passive foreign investment companies (“PFICs”) as defined in section 1297(a) since Year 1.

During the relevant years, Taxpayer engaged the services of Accountant A, a certified public accountant, to prepare her income tax returns as a U.S. resident. Taxpayer considered Accountant A to be very competent and knowledgeable about U.S. income tax matters, including rendering tax advice with respect to her ownership of the stock in FCs. Taxpayer made available to Accountant A all information requested and relevant to the provision of tax advice and the preparation of her income tax returns. However, Accountant A was not aware FCs were PFICs and, thus, did not advise Taxpayer of the consequences of making or failing to make QEF elections with respect to FCs. In Year 2, Taxpayer learned of a potential buyer for the assets owned by FC1. Accountant A suggested that Taxpayer consult with Attorney B for advice on any U.S. income tax issues pertaining to such a sale. Attorney B became aware of Taxpayer's ownership interest in FCs and their PFIC status. Attorney B took corrective action that same year.

Taxpayer submitted an affidavit, under penalties of perjury, describing the events that led to the failure to make the QEF elections by the election due dates. Taxpayer represents that, in all of the relevant years: (i) FCs were not identified as PFICs; and (ii) Taxpayer did not receive any advice regarding the availability of QEF elections with respect to her interest in FCs.

Taxpayer has paid an amount sufficient to eliminate any prejudice to the U.S. government as a consequence of her inability to file amended returns, in accordance with a signed closing agreement between Taxpayer and the Commissioner. Taxpayer has agreed to file amended returns for each of the subsequent taxable years affected by the retroactive elections, if any.

Taxpayer represents that, as of the date of the request for ruling, the PFIC status of FCs had not been raised by the IRS on audit for any of the taxable years at issue.

RULING REQUESTED

Taxpayer requests the consent of the Commissioner to make QEF elections under Treas. Reg. §1.1295-3(f) for FCs for Year 1.

LAW

Section 1295(a) provides that a PFIC will be treated as a QEF with respect to a shareholder if (1) an election by the shareholder under section 1295(b) applies to the PFIC for the taxable year; and (2) the PFIC complies with the requirements prescribed by the Secretary for purposes of determining the ordinary earnings and net capital gains of the company.

Under section 1295(b)(2), a QEF election may be made for a taxable year at any time on or before the due date (determined with regard to extensions) for filing the return for the taxable year. To the extent provided in regulations, the election may be made after the due date if the shareholder failed to make the election by the due date because the shareholder reasonably believed the company was not a PFIC.

Under Treas. Reg. §1.1295-3(f), a shareholder may request the consent of the Commissioner to make a retroactive QEF election for a taxable year if:

The procedural requirements include filing a request for consent to make a retroactive election with, and submitting a user fee to, the Office of the Associate Chief Counsel (International). Treas. Reg. §1.1295-3(f)(4)(i). Additionally, affidavits signed under penalties of perjury must be submitted that describe:

Treas. Reg. §1.1295-3(f)(4)(ii) and (iii).

CONCLUSION

Based on the information submitted and representations made with Taxpayer's ruling request, we conclude that Taxpayer has satisfied Treas. Reg. §1.1295-3(f). Accordingly, consent is granted to Taxpayer to make QEF elections for FCs retroactive to Year 1, provided that Taxpayer complies with the rules under Treas. Reg. §1.1295-3(g) regarding the time and manner for making the retroactive QEF elections. We have, consequently, approved a closing agreement with Taxpayer with respect to those issues affecting her tax liability on the basis set forth above. Pursuant to our practice with respect to such agreements, the agreement contains a stipulation to the effect that any change or modification of applicable statutes enacted subsequent to the date of this agreement and made applicable to the taxable period involved will render the agreement ineffective to the extent that it is dependent upon such statutes.

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.

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

Sincerely,

Kristine A. Crabtree
Senior Technical Reviewer, Branch 2
(International)

Attachment:
Closing Agreement

cc:
* * *