Grouping Election Rev Proc 2010-13

Can you make an appropriate economic unit grouping election on an amended return in the following circumstance?

A taxpayer materially participates in an S Corporation. In 2015 the business partners acquire property held in a separate LLC and file an initial partnership return for the self-rental activity. The taxpayer fails to make an election to group the two activities as an appropriate economic unit as required by Rev Proc 2010-13 and Treas Reg 1.469-4(c). However, he treats both activities as non-passive. In 2016 he mistakenly treated both entities as passive.

Per Section 4.07 of Rev Proc 2010-13, if the taxpayer fails to report the grouping a timely disclosure shall be deemed made when the taxpayer filed all affected income tax returns consistent with the claimed grouping of activities and makes the required disclosure in the year the failure is first discovered.

Could the taxpayer file an amended 1040 for 2016 to report the activities as non-passive and file a grouping election? The taxpayer lives in a state where hurricane relief extended the 2016 tax filing deadline to January 31, 2018.

4.07. Effect of Failure to Report.
Except as provided in § 4.05, if a taxpayer is engaged in two or more trade or business activities or rental activities and fails to report whether the activities have been grouped as a single activity in accordance with this revenue procedure, then each trade or business activity or rental activity will be treated as a separate activity for purposes of applying the passive activity loss and credit limitation rules of section 469. Notwithstanding the previous sentence, a timely disclosure shall be deemed made by a taxpayer who has filed all affected income tax returns consistent with the claimed grouping of activities and makes the required disclosure on the income tax return for the year in which the failure to disclose is first discovered by the taxpayer. If the failure to disclose is first discovered by the Service, however, the taxpayer must also have reasonable cause for not making the disclosures required by this revenue procedure. Although the default rule established by this section 4.07 will generally result in unreported activities being treated as separate activities, the Commissioner may still regroup a taxpayer's activities to prevent tax avoidance pursuant to § 1.469-4(f). This revenue procedure provides alternative relief for untimely filing of the disclosures required by this revenue procedure; therefore, relief for untimely disclosures under § 301.9100 of the Procedure and Administration Regulations is not available pursuant to § 301.9100-1(d)(2).

I am not reading this as being able to claim on an amended tax return. "For the year..."

And if we are splitting hairs, what if they discover the failure to disclose in 2023 but have not yet filed their 2022 tax return. Do they have to wait until they file their 2023 tax return?

Did you ever figure out this to be true that it cannot be done on an amended return?

No.

We haven’t been told WHEN the taxpayer discovered the failure to disclose the grouping and section 4.07 of Rev. Proc. 2010-13 states that a late grouping disclosure is tied to that fact.

But despite that, that same section states that one of the requirements for making a late grouping disclosure is that the taxpayer “has filed all affected income tax returns consistent with the claimed grouping of activities.” OP says that in 2015, the taxpayer treated the two activities as non-passive, and in 2016, he treated them as passive. That’s not consistent treatment.

So, I don't see that it matters whether or not a late grouping disclosure may be made on an amended return because the taxpayer doesn't appear to satisfy the requirements.

As for whether an amended return may be filed to make a late grouping election, sure. Why not? I don't see anything in the Rev. Proc. that prohibits this.

Let’s use the example in this thread, but modified slightly. Let’s suppose that the taxpayer grouped the two activities on the 2015 return and treated then both as non-passive without making the grouping disclosure, and suppose that this continued for many, many years right up to 2023. Let’s further suppose that the taxpayer discovered the failure to disclose the grouping during 2023. In filing the 2023 return, Rev. Proc. 2010-13 permits the taxpayer to disclose the grouping on the 2023 return despite the fact that the statute of limitations of the 2015 through 2019 returns may have expired.