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.
