The IRS in PLR 202048009 denied taxpayers’ request for Section 301.9100-3 relief (“9100 relief”) to make a late mark-to-market election for securities traders under Section 475(f)(1) because they failed to prove that they acted reasonably and in good faith and that granting the relief would not prejudice the government’s interests.
The mark-to-market election for securities traders under Section 475(f)(1) allows taxpayers to recognize unrealized gains and losses. A taxpayer makes a mark-to-market election by filing a statement before the due date of the tax return, without regard to any extension, for the taxable year immediately preceding the election year. The taxpayers failed to make a timely election and sought 9100 relief to make a late election.
The 9100 relief allows the IRS to grant a reasonable extension of time to make a regulatory election, as long as a taxpayer provides sufficient evidence to establish that the taxpayer acted reasonably in good faith, and that the relief will not prejudice the interests of the government. A taxpayer is deemed to have not acted reasonably and in good faith if specific facts have changed since the due date for requesting the election that would make the election beneficial to the taxpayer. In other words, the 9100 relief requires that the taxpayer does not operate with the benefit of hindsight. If Section 481(a) adjustment is required for an accounting method regulatory election for which 9100 relief is requested, the interests of the government are deemed to be prejudiced, unless a taxpayer can demonstrate unusual and compelling circumstances that warrant the relief.
The IRS ruled that the taxpayers failed to demonstrate that it acted reasonably and in good faith because specific material facts changed after the due date for making the election and the taxpayers benefitted from hindsight. In addition, the Section 475(f)(1) election is an accounting method regulatory election that requires a Section 481(a) adjustment and the taxpayers failed to establish unusual and compelling circumstances that would overcome the deemed prejudice to the interests of the government in such a situation.
Sharon Kay is the National Managing Partner of Grant Thornton LLP's Washington National Tax Office. Sharon has over 25 years of tax experience and primarily advises clients on federal income tax issues such as accounting method changes, income and expense recognition, inventories, tangible and intangible asset capitalization and recovery, and certain business credits.
Washington DC, Washington DC
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