Retroactive Elections

Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 201629005
Release Date: 7/15/2016
Index Number: 1295.02-02
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:INTL:B02
PLR-135814-15
Date:
April 15, 2016
Legend
Taxpayers = --- and ---
FC = ---
Country A = ---
Year 1 = ---
Year 2 = ---
Tax Accountant = ---
Dear ---:
This is in response to a letter dated October 28, 2015, submitted by Taxpayers’ authorized representatives that requested the consent of the Commissioner of the Internal Revenue Service (“Commissioner”) 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 by Taxpayers 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.

# FACTS

Taxpayers are U.S. citizens who file a joint return. On various dates in Year 1, Taxpayers acquired shares of FC. FC was a passive foreign investment company PLR-135814-15 2 (“PFIC”) with respect to Taxpayers and continues to be a PFIC with respect to Taxpayers.
Taxpayers relied on Tax Accountant to prepare their income tax return for Year 1.
Although Tax Accountant was aware of Taxpayers’ acquisition of FC shares, Tax Accountant did not inform them that FC was a PFIC or that a QEF election was available. In Year 2, Taxpayers became aware of the PFIC issue with respect to their FC shares after conducting their own research and confirming the issue with FC and the Taxpayers’ new tax accountant.
Taxpayers submitted affidavits, under penalties of perjury, describing the events that led to their failure to make a QEF election with respect to FC by the election due date, including the role of Tax Accountant.
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.
RULING REQUESTED
Taxpayers request the consent of the Commissioner to make a retroactive QEF election with respect to FC under Treas. Reg. §1.1295-3(f), retroactive to Year 1.

# LAW

Section 1295(a) provides that a PFIC will be treated as a QEF with respect to a taxpayer if (1) an election by the taxpayer under section 1295(b) applies to such PFIC for the taxable year; and (2) the PFIC complies with such requirements as the Secretary may prescribe for purposes of determining the ordinary earnings and net capital gains of such company.
Under section 1295(b)(2), a QEF election may be made for any taxable year at any time on or before the due date (determined with regard to extensions) for filing the return for such taxable year. To the extent provided in regulations, such an election may be made after such due date if the taxpayer failed to make an election by the due date because the taxpayer 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);
PLR-135814-15 3
3. the request is made before a representative of the Internal Revenue Service raises upon audit the PFIC status of the corporation 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 such failure;
3. the engagement and responsibilities of the qualified tax professional; and
4. the extent to which the shareholder relied on such professional.
Treas. Reg. § 1.1295-3(f)(4)(ii) and (iii).

# CONCLUSION

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.

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.
PLR-135814-15 4
In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representatives.
Sincerely,
Kristine Crabtree
Assistant to Branch Chief, Branch 2
(International)