IRS Gives Relief for Late Elections to Combine Real Estate Activities

The IRS established a special procedure by which taxpayers can make a late election to treat all their real estate activities as a single activity for purposes of meeting material participation rules.


The guidance, in Revenue Procedure 2011-34, allows eligible taxpayers to avoid applying for a private letter ruling to obtain relief; however, taxpayers who do not qualify under the revenue procedure’s requirements may still seek relief via a letter ruling. The revenue procedure applies to ruling requests received by the IRS after June 13, the date it is scheduled to be published in IRB 2011-24, and to ruling requests pending in the IRS’ national office on that date. According to the revenue procedure, the national office will decline to rule on all ruling requests currently pending as of June 13, 2011, and will refund the user fee.

Generally, under Sec. 469(c)(2), rental activities are presumptively treated as passive, restricting taxpayers’ eligibility to recognize certain losses and credits. Sec. 469(c)(7)(B) provides an exception from the presumption for qualifying rental real estate activities, in the form of thresholds for the amount and type of personal services performed in rental trades or businesses involving real property in which the taxpayer materially participates. Each of the taxpayer’s real estate interests is treated as a separate activity for these tests; however, Regs. Sec. 1.469-9(g)(1) allows a qualifying taxpayer to elect to instead treat them as a single real estate activity. The election is properly made by filing a statement with the taxpayer’s original income tax return, in a form specified by Regs. Sec. 1.469-9(g)(3). An extension of up to six months may be sought under the general regulatory election provisions of Regs. Secs. 301.9100-1 through 301.9100-3.


Taxpayers may be eligible for relief under Revenue Procedure 2011-34 if they:


  • Failed to make the election solely because they failed to timely meet the requirements in Regs. Sec. 1.469-9(g), and have reasonable cause for the failure.

  • Filed consistently with having made the election on any previous return that would have been affected if they had timely made the election.

  • Have filed all required federal income tax returns consistent with the requested aggregation for all the years including and following the year they intend the election to be effective, and no tax returns containing positions inconsistent with the request have been filed by or with respect to the taxpayer during any of those years.

  • Have timely filed each return (within six months of its due date, not including extensions) that would have been affected by the election if it had been timely made.


To request relief under the revenue procedure, the taxpayer must attach the statement required by Regs. Sec. 1.469-9(g)(3) to an amended return for the most recent tax year and mail it to the IRS service center where the taxpayer will file a current-year income tax return. The statement must contain the declaration required by Regs. Sec. 1.469-9(g)(3); explain the reason for the failure to file a timely election; state that the taxpayer meets the eligibility requirements set out in the revenue procedure; identify the tax year for which the late election is sought; and reference the revenue procedure in a heading. It also must contain the declaration prescribed in the revenue procedure and be dated and signed by the taxpayer.

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