Retroactive Elections

Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 201642025
Release Date: 10/14/2016
Index Number: 1295.02-02
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
---, ID No. ---
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Telephone Number:
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Refer Reply To:
CC:INTL:B02
PLR-134842-15
Date:
July 19, 2016
Shareholder = ---
FC = ---
Country = ---
Year 1 = ---
Year 2 =---
Year 3 = ---
Year 4 = ---
Tax Advisor 1 = ---
Tax Advisor 2 = ---
Dear ---:
This is in response to a letter dated September 11, 2015, submitted by Shareholder’s 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 Shareholder’s investment in FC.
The ruling contained in this letter is based upon information and representations submitted by Shareholder 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

Shareholder is a married individual who files a joint federal income tax return with his spouse. Shareholder was a United States resident and citizen at all relevant times. FC is an entity organized under the laws of Country that is treated as a corporation for U.S.
PLR-134842-15 2 federal income tax purposes. FC qualified as a passive foreign investment company
(“PFIC”) as defined in section 1297 with respect to Shareholder for all relevant years.
Shareholder acquired shares of FC in Year 1.
Shareholder is neither a tax professional nor a tax expert and was not familiar with the rules governing PFICs or the availability of making a QEF election. Shareholder relied on Tax Advisor 1 to prepare his income tax return for Year 1. Shareholder relied on Tax Advisor 2 to prepare his income tax returns for Year 2 through Year 4. Tax Advisor 1 did not advise Shareholder that FC was a PFIC. FC did not inform Shareholder that it may have been a PFIC until it sent Shareholder an email in Year 3 with PFIC annual information statements attached. Shareholder forwarded the email to Tax Advisor 2 in Year 4 as part of the documents Tax Advisor 2 needed to prepare Shareholder’s Year 3 tax return.
Shareholder submitted affidavits, under penalties of perjury, describing the events that led to his failure to make a QEF election with respect to FC by the election due date, the discovery of such failure, the engagement and responsibilities of the qualified tax professionals, and the extent to which the shareholder relied on such professionals, including the roles of Tax Advisor 1 and Tax Advisor 2.
Shareholder represents that, as of the date of his 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
Shareholder requests 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:
PLR-134842-15 3
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);
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 Shareholder’s ruling request, we conclude that Shareholder has satisfied Treas. Reg. § 1.1295-3(f).
Accordingly, consent is granted to Shareholder to make a retroactive QEF election with respect to FC for Year 1, provided that Shareholder complies with the rules under Treas. Reg. § 1.1295-3(g) regarding the time and manner for making the retroactive QEF election.
Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.
PLR-134842-15 4
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.
Sincerely,
Kristine Crabtree
Assistant to the Branch Chief, Branch 2
(International) cc: