IRS written determination 201509021

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201509021
Release Date: 2/27/2015
Index Number: 9100.00-00; 108.00-00
--------------------------
----------------------
----------------------------------------------
------------------------------
---------------------------------------------------
--------------------------------
------------------------------------
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
------------------, ID No. ------------------
Telephone Number:
----------------------
Refer Reply To:
CC:ITA:B04
PLR-121582-14
Date:
November 12, 2014
LEGEND:
Taxpayer= ----------------------------------------------------------------------
------------------
Trustee=------------------------------------
LLC=---------------------------------------------------------------------
Tax Matters Partner for LLC=--------------------------
Company=----------------
Tax Advisor 1=----------------------
Tax Advisor 2=---------------------------
Year 1 =-------
Year 2=-------
Year 3=-------
X%=---------
$a=-----------------
Dear -------------:
This letter responds to a letter ruling request, originally dated May 21, 2014, submitted
on behalf of Taxpayer. Taxpayer requests an extension of time under §§ 301.9100-1
and 301.9100-3 of the Procedure and Administration Regulations to make an election
under § 108(c)(3)(C) of the Internal Revenue Code and § 1.108-5 of the Income Tax
Regulations, to exclude income resulting from the discharge of qualified real property
business indebtedness and to reduce the basis of depreciable real property, effective
for Taxpayer’s Year 1 tax return.
FACTS

PLR-121582-14
2
Taxpayer is a trust taxed pursuant to Subpart A of Subchapter J of the Code. Taxpayer
utilizes the cash receipts and disbursements method of accounting and has a calendar
year as an annual accounting period.
Taxpayer is a member of LLC and owns an X% interest in LLC. LLC is a domestic
limited liability company that is taxed as a partnership. LLC’s primary asset is a
commercial building, which formerly was leased to Company. Prior to Year 1, Company
closed the location leased from LLC, and the property has been vacant. In Year 1, the
debt secured by this property was restructured, reducing the outstanding balance by
approximately $a. Taxpayer represents that the original debt has been incurred to
acquire and construct the building, and as such constitutes qualified real property
business indebtedness as defined in § 108(c)(3).
While these events were taking place, Tax Advisor 1 discussed with LLC the tax
consequences of this debt restructuring, including the treatment of the discharge of
qualified real property business indebtedness. LLC and Tax Advisor 1 agreed that
elections pursuant to § 108(c)(3)(C) were advisable and would be made by the
members of LLC.
In March of Year 2, Tax Advisor 1 prepared a draft of the Year 1 Form 1065 for LLC.
The primary purpose of this draft was to prepare the Schedule K-1s that the LLC
owners could use to complete their Year 1 personal income tax returns. The LLC’s
Year 1 tax return could not be completed at this time, however, because one of the
owners died during Year 1. Therefore, LLC waited for the completion of a valuation of
the real estate. This was necessary to properly report the § 743(b) adjustment
attributable to the decedent’s successor in interest.
One of the consequences of the return’s preparation in draft form was that the review
was focused primarily on the amounts reported on the K-1s. Relatively little time was
spent on disclosures, including information relevant to the debt restructuring. As a
consequence, the fact that partners needed to explicitly make the § 108(c)(3)(C)
election on their tax returns by completing Form 982, Reduction of Tax Attributes Due to
Discharge of Indebtedness, was overlooked when Tax Advisor 1 prepared the Year 1
tax returns for Taxpayer and the other partners. However, Tax Advisor 1 prepared the
LLC’s Year 1tax return with the exclusion of income as if the § 108(c)(3)(C) election
had been made. In doing so, LLC applied the limitations outlined in § 108(c)(2) –
ultimately limiting the income exclusion to the aggregate adjusted basis of depreciable
real property held immediately prior to the discharge. The amount excluded was
applied to reduce the basis of the depreciable real property to zero. The excess was
included in LLC’s taxable income. Subsequently, LLC’s Year 1 tax return was
completed and filed.

PLR-121582-14
3
In December of Year 2, LLC engaged Tax Advisor 2 to succeed Tax Advisor 1 as the
provider of LLC’s tax services. In Year 3, Tax Advisor 2 discovered that no disclosure
regarding the debt forgiveness was made in LLC’s Year 1 tax return. Furthermore,
there was also no cancellation of indebtedness (COD) income included on the Schedule
K-1s as a flow-through item. Although the partners of LLC had been informed that Tax
Advisor 1 would prepare all necessary disclosures and forms, none of the partners’ tax
returns included Form 982 or any other disclosure related to the debt forgiveness. As
such, none of the partners had made the § 108(c)(3)(C) election. Trustee, Tax matters
Partner for LLC, and Tax Advisor 1 submitted affidavits consistent with the above facts.
Taxpayer and the other partners filed this request for an extension of time to make the
election.
Taxpayer represents that upon receipt of a favorable ruling, Taxpayer will file an
amended return to make the election under § 108(c)(3)(C). The amended return will
include Form 982 along with a copy of this ruling. No further adjustments would be
required to Taxpayer’s tax return because prior returns of LLC and the partners
(including Taxpayer) were prepared as if the partners had made the § 108(c)(3)(C)
election.
LAW
Section 108(a)(1)(D) provides that gross income does not include any amount that (but
for § 108(a)) would be includible in gross income by reason of the discharge of
indebtedness if, in the case of a taxpayer other than a C corporation, the indebtedness
discharged is qualified real property business indebtedness.
Section 108(c)(2) provides, in general, that the amount excluded under § 108(a)(1)(D)
with respect to any qualified real property business indebtedness shall not exceed the
excess of the outstanding principal amount of such indebtedness (immediately before
the discharge) over the fair market value of the real property described in § 108(c)(3)(A)
(as of such time).
Section 108(c)(3)(C) requires a taxpayer to make an election toexclude COD income
under § 108(a)(1)(D).
Section 108(d)(6) provides that in the case of a partnership, § 108(a) and § 108(c) are
applied at the partner level.
Section 1.108-5(b) provides that the election under § 108(c)(3)(C) is made on the timely
filed(including extensions) federal income tax return for the taxable year in which the
taxpayer has discharge of indebtedness income that is excludible from gross income
under § 108(a). The election is made on a completed Form 982 in accordance with that
Form and its instructions.

PLR-121582-14
4
Sections 301.9100-1 through § 301.9100-3 provide the standards that 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 extension of time for regulatory
elections (other than automatic extensions 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 the grant of relief will not prejudice the interests
of the Government.
Under § 301.9100-3(b) a taxpayer is deemed to have acted reasonably and in good
faith if the taxpayer reasonably relied on a qualified tax professional and the tax
professional failed to make, or advise the taxpayer to make, the election. However, a
taxpayer is not considered to have reasonably relied on a qualified tax professional if
the taxpayer knew or should have known that the professional was not competent to
render advice on the regulatory election or was not aware of all relevant facts. In
addition, § 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted
reasonably and in good faith if the taxpayer –
(i) Seeks to alter a return position for which an accuracy-related penalty has been or
could be imposed under § 6662 at the time the taxpayer requests relief and the new
position requires or permits a regulatory election for which relief is requested;
(ii) Was informed in all respects of the required election and related consequences, but
chose not to make the election; or
(iii) Uses hindsight in requesting relief.
Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable
extension of time to make the regulatory election only when the interests of the
Government will not be prejudiced by the granting of relief.
Section 301.9100-3(c)(1)(i) provides that the interests of the Government are prejudiced
if granting relief would result in a taxpayer having a lower tax liability in the aggregate
for all taxable years affected by the election than the taxpayer would have had if the
election had been timely made (taking into account the time value of money). Similarly,
if the tax consequences of more than one taxpayer are affected by the election, the
Government's interests are prejudiced if extending the time for making the election may
result in the affected taxpayers, in the aggregate, having a lower tax liability than if the
election had been timely made.
Section 301.9100-3(c)(1)(ii) provides that the interests of the government are ordinarily
prejudiced if the taxable year in which the regulatory election should have been made or
any taxable year that would have been affected by the election had it been timely made

PLR-121582-14
5
are closed by the period of limitations on assessment under § 6501(a) before the
taxpayer's receipt of a ruling granting relief under this section.
ANALYSIS
The information and representations made by Taxpayer establish that Taxpayer acted
reasonably and in good faith. Taxpayer reasonably relied on Tax Advisor 1 to prepare
federal income tax returns for LLC and Taxpayer for Year 1. Furthermore, Taxpayer is
not seeking to alter a return position for which an accuracy-related penalty has been or
could be imposed under § 6662 at the time relief is requested. Taxpayer did not
affirmatively choose not to make the election. Rather, Taxpayer anticipated that Tax
Advisor 1 would prepare the appropriate election. Taxpayer is not using hindsight in
requesting relief. It was Taxpayer’s expectation that the debtrelief qualified for
§ 108(a)(1)(D) treatment.
Additionally, based on the facts of the case provided, granting an extension will not
prejudice the interests of the Government. Granting relief would simply allow Taxpayer
to file an amended tax return forYear 1 consistent with how the original tax return was
filed previously – as if the election had been made. Taxpayer represents that none of
the years impacted by this late election are closed by the period of limitations on
assessments under § 6501(a).
RULING
Based upon our analysis of the facts as represented, we conclude that Taxpayer acted
reasonably and in good faith, and granting relief will not prejudice the interests of the
government. Thus, the requirements of §§ 301.9100-1 and 301.9100-3 are met.
Accordingly, we grant Taxpayer an extension of 45 days from the date of this letter to
file an amended return to make the election under § 108(c)(3)(C) and § 1.108-5(b). The
election is to be made on Form 982.
A copy of this letter must be attachedto 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.
Except asexpressly provided herein, we do not express or imply an opinion concerning
the tax consequences of any aspect of any transaction or item discussed or referenced
in this letter. Specifically, this letter does not rule on whether the amount of income at
issue is properly treated as COD income under § 61(a)(12). In addition, this letter also
does not rule on whether the income in fact qualifies for exclusion from income under
§ 108 (including § 108(c)(3)).

PLR-121582-14
6
The rulings contained in this letter are based upon information and representations
submitted 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 rulings, 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.
In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to Taxpayer and the first-listed authorized representative. We are also
sending a copy of this letter to the appropriate operating division director. Enclosed is a
copy of the letter ruling showing the deletions proposed to be made in the letter when it
is disclosed under §6110.
Sincerely,
Michael J. Montemurro
Chief, Branch 4
Office of Associate Chief Counsel
(Income Tax & Accounting)
Enclosure (1)