IRS Grants Extension For Safe Harbor Method Of Allocating Success-Based Fee

In a private letter ruling (PLR 201338018), the IRS granted the taxpayer an extension to file a statement required by Rev. Proc. 2011-29 to elect to use the safe harbor method of allocating success-based fees paid or incurred in a covered transaction.

In Rev. Proc. 2011-29, the IRS provided a safe harbor election for taxpayers that pay or incur success-based fees for services performed in the process of investigating or otherwise pursuing a covered transaction described in Treas. Reg. Sec. 1.263(a)-5(e)(3).

In lieu of maintaining the documentation required by Treas. Reg. Sec. 1.263(a)-5(f), a taxpayer may elect to allocate a success-based fee between activities that facilitate and do not facilitate the transaction by treating 70% of the amount of the success-based fee as an amount that doesn’t facilitate the transaction and by capitalizing the remaining 30% as an amount that does facilitate the transaction.