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Consent Granted to Make Retroactive QEF Election

NOV. 23, 2021

LTR 202207001

DATED NOV. 23, 2021
Citations: LTR 202207001

Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact: * * *, ID No. * * *
Telephone Number: * * *

Index Number: 1295.02-02
Release Date: 2/18/2022

Date: November 23, 2021

Refer Reply To: CC:INTL:B02 - PLR-104567-17

TY: * * *


Spouse A = * * *
Spouse B = * * *
FC = * * *
Country = * * *
Management Company = * * *
Tax Preparer = * * *
Accounting Firm X = * * *
Accounting Firm Y = * * *
Date X = * * *
Year 1 = * * *
Year 2 = * * *
Year 3 = * * *

Dear * * *:

This is in response to a letter submitted by your authorized representative that requested the consent of the Commissioner of the Internal Revenue Service (“Commissioner”) for Taxpayers 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 Taxpayers' investment in FC.

The ruling contained in this letter is based upon information and representations submitted on behalf of Taxpayers by their authorized representative, 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 this request for ruling, such material is subject to verification on examination. The information submitted in the request is substantially as set forth below.


Spouse A and Spouse B (collectively, “Taxpayers”) have filed their federal tax returns as a married couple filing jointly for all tax years relevant to this letter ruling. In Year 1, Spouse A invested in FC, a Country corporation managed by Management Company. Taxpayers were unaware that FC was a passive foreign investment company (“PFIC”) as defined in section 1297(a) of the Code.

During the relevant years, Taxpayers engaged the services of Tax Preparer and Accounting Firm X (collectively, “Tax Advisors”) to prepare their Forms 1040 and advise on their investment in FC, respectively. Tax Advisors were competent to render international tax advice with respect to Taxpayers' investment in FC.

In Year 2, Management Company informed the investors of FC that FC had been a PFIC and that FC elected to be treated as a partnership for U.S. federal income tax purposes effective Date X. Taxpayers related this information to Tax Advisors. However, Tax Advisors failed to advise Taxpayers on the significance of FC being a PFIC and of the availability of a QEF election and the consequences of making or failing to make a QEF election with respect to FC. FC was a PFIC in Year 1, when Taxpayers acquired an interest in FC, through and in each relevant subsequent year until Date X.

In Year 3, Taxpayers sold their interest in FC and engaged the services of Accounting Firm Y, which advised Taxpayers of the significance of FC being a PFIC and of the advisability of a QEF election.

Taxpayers submitted affidavits, under penalties of perjury, describing the events that led to the failure to make the QEF election by the election due date.

Taxpayers have paid an amount sufficient to eliminate any prejudice to the United States government as a consequence of their inability to file amended returns, in accordance with a signed closing agreement between Taxpayers and the Commissioner. Further, Taxpayers have agreed to file an amended return for each of the subsequent taxable years affected by the retroactive election, if any.

In addition, Taxpayers represent that, as of the date of their request for ruling, the PFIC status of FC had not been raised by the IRS on audit for any of the taxable years at issue.


Taxpayers request the consent of the Commissioner to make a QEF election retroactive to Year 1 with respect to their investment in FC under Treas. Reg. § 1.1295-3(f).


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 an 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:

1. the shareholder reasonably relied on a qualified tax professional, within the meaning of Treas. Reg. §1.1295-3(f)(2);

2. granting consent will not prejudice the interests of the United States government, as provided in Treas. Reg. §1.1295-3(f)(3);

3. the request is made before a representative of the Internal Revenue Service raises upon audit the PFIC status of the company for any taxable year of the shareholder; and

4. the shareholder satisfies the procedural requirements of Treas. Reg. §1.1295-3(f)(4).

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:

1. the events that led to the failure to make a QEF election by the election due date;

2. the discovery of the failure;

3. the engagement and responsibilities of the qualified tax professional; and

4. the extent to which the shareholder relied on the professional.

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


Based on the information submitted and representations made with Taxpayers' ruling request, we conclude that Taxpayers have satisfied Treas. Reg. § 1.1295-3(f). Accordingly, consent is granted to Taxpayers to make a retroactive QEF election with respect to FC for Year 1, provided that Taxpayers comply with the rules under Treas. Reg. § 1.1295-3(g) regarding the time and manner for making the retroactive QEF election. We have, consequently, approved a closing agreement with Taxpayers with respect to those issues affecting their tax liability on the basis set forth above.

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 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.

A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling.

In accordance with the Power of Attorney on file with this office, copies of this letter ruling are being sent to your authorized representatives.


Kristine A. Crabtree
Senior Technical Reviewer, Branch 2

* * *

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