[Code of Federal Regulations]
[Title 26, Volume 18]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR301.9100-3]

[Page 692-695]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents
 
                              General Rules
 
Sec. 301.9100-3  Other extensions.

    (a) In general. Requests for extensions of time for regulatory 
elections that do not meet the requirements of Sec. 301.9100-2 must be 
made under the rules of this section. Requests for relief subject to 
this section will be granted when the taxpayer provides the evidence 
(including affidavits described in paragraph (e) of this section) to 
establish to the satisfaction of the Commissioner that the taxpayer 
acted reasonably and in good faith, and the grant of relief will not 
prejudice the interests of the Government.
    (b) Reasonable action and good faith--(1) In general. Except as 
provided in paragraphs (b)(3)(i) through (iii) of this section, a 
taxpayer is deemed to have acted reasonably and in good faith if the 
taxpayer--
    (i) Requests relief under this section before the failure to make 
the regulatory election is discovered by the Internal Revenue Service 
(IRS);
    (ii) Failed to make the election because of intervening events 
beyond the taxpayer's control;
    (iii) Failed to make the election because, after exercising 
reasonable diligence (taking into account the taxpayer's experience and 
the complexity of the return or issue), the taxpayer was unaware of the 
necessity for the election;
    (iv) Reasonably relied on the written advice of the Internal Revenue 
Service (IRS); or
    (v) Reasonably relied on a qualified tax professional, including a 
tax professional employed by the taxpayer, and the tax professional 
failed to make, or advise the taxpayer to make, the election.
    (2) Reasonable reliance on a qualified tax professional. For 
purposes of this paragraph (b), a taxpayer will not be considered to 
have reasonably relied on a qualified tax professional if the taxpayer 
knew or should have known that the professional was not--
    (i) Competent to render advice on the regulatory election; or
    (ii) Aware of all relevant facts.
    (3) Taxpayer deemed to have not acted reasonably or in good faith. 
For purposes of this paragraph (b), a taxpayer is deemed to have not 
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 section 6662 at the time the 
taxpayer requests relief (taking into account any qualified amended 
return filed within the meaning of Sec. 1.6664-2(c)(3) of this chapter) 
and the new position requires or permits a regulatory election for which 
relief is requested;
    (ii) Was informed in all material respects of the required election 
and related tax consequences, but chose not to file the election; or
    (iii) Uses hindsight in requesting relief. If specific facts have 
changed since the due date for making the election that make the 
election advantageous to a taxpayer, the IRS will not ordinarily grant 
relief. In such a case, the

[[Page 693]]

IRS will grant relief only when the taxpayer provides strong proof that 
the taxpayer's decision to seek relief did not involve hindsight.
    (c) Prejudice to the interests of the Government--(1) In general. 
The Commissioner will grant a reasonable extension of time to make a 
regulatory election only when the interests of the Government will not 
be prejudiced by the granting of relief. This paragraph (c) provides the 
standards the Commissioner will use to determine when the interests of 
the Government are prejudiced.
    (i) Lower tax liability. 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.
    (ii) Closed years. The interests of the Government are ordinarily 
prejudiced if the taxable year in which the regulatory election should 
have been made or any taxable years that would have been affected by the 
election had it been timely made are closed by the period of limitations 
on assessment under section 6501(a) before the taxpayer's receipt of a 
ruling granting relief under this section. The IRS may condition a grant 
of relief on the taxpayer providing the IRS with a statement from an 
independent auditor (other than an auditor providing an affidavit 
pursuant to paragraph (e)(3) of this section) certifying that the 
interests of the Government are not prejudiced under the standards set 
forth in paragraph (c)(1)(i) of this section.
    (2) Special rules for accounting method regulatory elections. The 
interests of the Government are deemed to be prejudiced except in 
unusual and compelling circumstances if the accounting method regulatory 
election for which relief is requested--
    (i) Is subject to the procedure described in Sec. 1.446-1(e)(3)(i) 
of this chapter (requiring the advance written consent of the 
Commissioner);
    (ii) Requires an adjustment under section 481(a) (or would require 
an adjustment under section 481(a) if the taxpayer changed to the method 
of accounting for which relief is requested in a taxable year subsequent 
to the taxable year the election should have been made);
    (iii) Would permit a change from an impermissible method of 
accounting that is an issue under consideration by examination, an 
appeals office, or a federal court and the change would provide a more 
favorable method or more favorable terms and conditions than if the 
change were made as part of an examination; or
    (iv) Provides a more favorable method of accounting or more 
favorable terms and conditions if the election is made by a certain date 
or taxable year.
    (3) Special rules for accounting period regulatory elections. The 
interests of the Government are deemed to be prejudiced except in 
unusual and compelling circumstances if an election is an accounting 
period regulatory election (other than the election to use other than 
the required taxable year under section 444) and the request for relief 
is filed more than 90 days after the due date for filing the Form 1128, 
Application to Adopt, Change, or Retain a Tax Year (or other required 
statement).
    (d) Effect of amended returns--(1) Second examination under section 
7605(b). Taxpayers requesting and receiving an extension of time under 
this section waive any objections to a second examination under section 
7605(b) for the issue(s) that is the subject of the relief request and 
any correlative adjustments.
    (2) Suspension of the period of limitations under section 6501(a). A 
request for relief under this section does not suspend the period of 
limitations on assessment under section 6501(a). Thus, for relief to be 
granted, the IRS may require the taxpayer to consent under section 
6501(c)(4) to an extension of the period of limitations on assessment 
for the taxable year in which the regulatory election should have been 
made and any taxable years that would have

[[Page 694]]

been affected by the election had it been timely made.
    (e) Procedural requirements--(1) In general. Requests for relief 
under this section must provide evidence that satisfies the requirements 
in paragraphs (b) and (c) of this section, and must provide additional 
information as required by this paragraph (e).
    (2) Affidavit and declaration from taxpayer. The taxpayer, or the 
individual who acts on behalf of the taxpayer with respect to tax 
matters, must submit a detailed affidavit describing the events that led 
to the failure to make a valid regulatory election and to the discovery 
of the failure. When the taxpayer relied on a qualified tax professional 
for advice, the taxpayer's affidavit must describe the engagement and 
responsibilities of the professional as well as the extent to which the 
taxpayer relied on the professional. The affidavit must be accompanied 
by a dated declaration, signed by the taxpayer, which states: ``Under 
penalties of perjury, I declare that I have examined this request, 
including accompanying documents, and, to the best of my knowledge and 
belief, the request contains all the relevant facts relating to the 
request, and such facts are true, correct, and complete.'' The 
individual who signs for an entity must have personal knowledge of the 
facts and circumstances at issue.
    (3) Affidavits and declarations from other parties. The taxpayer 
must submit detailed affidavits from the individuals having knowledge or 
information about the events that led to the failure to make a valid 
regulatory election and to the discovery of the failure. These 
individuals must include the taxpayer's return preparer, any individual 
(including an employee of the taxpayer) who made a substantial 
contribution to the preparation of the return, and any accountant or 
attorney, knowledgeable in tax matters, who advised the taxpayer with 
regard to the election. An affidavit must describe the engagement and 
responsibilities of the individual as well as the advice that the 
individual provided to the taxpayer. Each affidavit must include the 
name, current address, and taxpayer identification number of the 
individual, and be accompanied by a dated declaration, signed by the 
individual, which states: ``Under penalties of perjury, I declare that I 
have examined this request, including accompanying documents, and, to 
the best of my knowledge and belief, the request contains all the 
relevant facts relating to the request, and such facts are true, 
correct, and complete.''
    (4) Other information. The request for relief filed under this 
section must also contain the following information--
    (i) The taxpayer must state whether the taxpayer's return(s) for the 
taxable year in which the regulatory election should have been made or 
any taxable years that would have been affected by the election had it 
been timely made is being examined by a district director, or is being 
considered by an appeals office or a federal court. The taxpayer must 
notify the IRS office considering the request for relief if the IRS 
starts an examination of any such return while the taxpayer's request 
for relief is pending;
    (ii) The taxpayer must state when the applicable return, form, or 
statement used to make the election was required to be filed and when it 
was actually filed;
    (iii) The taxpayer must submit a copy of any documents that refer to 
the election;
    (iv) When requested, the taxpayer must submit a copy of the 
taxpayer's return for any taxable year for which the taxpayer requests 
an extension of time to make the election and any return affected by the 
election; and
    (v) When applicable, the taxpayer must submit a copy of the returns 
of other taxpayers affected by the election.
    (5) Filing instructions. A request for relief under this section is 
a request for a letter ruling. Requests for relief should be submitted 
in accordance with the applicable procedures for requests for a letter 
ruling and must be accompanied by the applicable user fee.
    (f) Examples. The following examples illustrate the provisions of 
this section:

    Example 1. Taxpayer discovers own error. Taxpayer A prepares A's 
1997 income tax return. A is unaware that a particular regulatory 
election is available to report a transaction in a particular manner. A 
files the 1997 return without making the election and

[[Page 695]]

reporting the transaction in a different manner. In 1999, A hires a 
qualified tax professional to prepare A's 1999 return. The professional 
discovers that A did not make the election. A promptly files for relief 
in accordance with this section. Assume paragraphs (b)(3) (i) through 
(iii) of this section do not apply. Under paragraph (b)(1)(i) of this 
section, A is deemed to have acted reasonably and in good faith because 
A requested relief before the failure to make the regulatory election 
was discovered by the IRS.
    Example 2. Reliance on qualified tax professional. Taxpayer B hires 
a qualified tax professional to advise B on preparing B's 1997 income 
tax return. The professional was competent to render advice on the 
election and B provided the professional with all the relevant facts. 
The professional fails to advise B that a regulatory election is 
necessary in order for B to report income on B's 1997 return in a 
particular manner. Nevertheless, B reports this income in a manner that 
is consistent with having made the election. In 2000, during the 
examination of the 1997 return by the IRS, the examining agent discovers 
that the election has not been filed. B promptly files for relief in 
accordance with this section, including attaching an affidavit from B's 
professional stating that the professional failed to advise B that the 
election was necessary. Assume paragraphs (b)(3) (i) through (iii) of 
this section do not apply. Under paragraph (b)(1)(v) of this section, B 
is deemed to have acted reasonably and in good faith because B 
reasonably relied on a qualified tax professional and the tax 
professional failed to advise B to make the election.
    Example 3. Accuracy-related penalty. Taxpayer C reports income on 
its 1997 income tax return in a manner that is contrary to a regulatory 
provision. In 2000, during the examination of the 1997 return, the IRS 
raises an issue regarding the reporting of this income on C's return and 
asserts the accuracy-related penalty under section 6662. C requests 
relief under this section to elect an alternative method of reporting 
the income. Under paragraph (b)(3)(i) of this section, C is deemed to 
have not acted reasonably and in good faith because C seeks to alter a 
return position for which an accuracy-related penalty could be imposed 
under section 6662.
    Example 4. Election not requiring adjustment under section 481(a). 
Taxpayer D prepares D's 1997 income tax return. D is unaware that a 
particular accounting method regulatory election is available. D files 
D's 1997 return without making the election and uses another permissible 
method of accounting. The applicable regulation provides that the 
election is made on a cut-off basis (without an adjustment under section 
481(a)). In 1998, D requests relief under this section to make the 
election under the regulation. If D were granted an extension of time to 
make the election, D would pay no less tax than if the election had been 
timely made. Assume that paragraphs (c)(2) (i), (iii), and (iv) of this 
section do not apply. Under paragraph (c)(2)(ii) of this section, the 
interests of the Government are not deemed to be prejudiced because the 
election does not require an adjustment under section 481(a).
    Example 5. Election requiring adjustment under section 481(a). The 
facts are the same as in Example 4 of this paragraph (f) except that the 
applicable regulation provides that the election requires an adjustment 
under section 481(a). Under paragraph (c)(2)(ii) of this section, the 
interests of the Government are deemed to be prejudiced except in 
unusual or compelling circumstances.
    Example 6. Under examination by the IRS. A regulation permits an 
automatic change in method of accounting for an item on a cut-off basis. 
Taxpayer E reports income on E's 1997 income tax return using an 
impermissible method of accounting for the item. In 2000, during the 
examination of the 1997 return by the IRS, the examining agent notifies 
E in writing that its method of accounting for the item is an issue 
under consideration. Any change from the impermissible method made as 
part of an examination is made with an adjustment under section 481(a). 
E requests relief under this section to make the change pursuant to the 
regulation for 1997. The change on a cut-off basis under the regulation 
would be more favorable than if the change were made with an adjustment 
under section 481(a) as part of an examination. Under paragraph 
(c)(2)(iii) of this section, the interests of the Government are deemed 
to be prejudiced except in unusual and compelling circumstances because 
E seeks to change from an impermissible method of accounting that is an 
issue under consideration in the examination on a basis that is more 
favorable than if the change were made as part of an examination.

[T.D. 8742, 62 FR 68171, Dec. 31, 1997]