PLR 200007010: Parent gets more time to file allowed-loss statement

Plain-English summary

A consolidated group's parent claimed a worthless-stock loss after liquidating a subsidiary, but did not attach the statement required by the consolidated-return loss rule. The IRS found that outside tax professionals had been responsible for the statement and that the parent had relied on them to file it. It gave the parent 30 days from the letter date to file the statement by amending its return and attaching the ruling. Relief depended on the subsidiary stock actually becoming worthless in the stated year and on the group's aggregate tax liability not being lower than it would have been with a timely filing. The IRS did not decide whether the stock was worthless, whether the loss was deductible, or what amount was allowed; otherwise applicable penalties and interest continued.

Ruling snapshot

• Question: Could the parent file the section 1.1502-20(c)(3) allowed-loss statement after its return deadline?
• Outcome: Approved for 30 days, subject to the letter's conditions
• Key authorities: IRC § 165(g); Treas. Reg. §§ 1.1502-20(c)(3) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Index Number: 1502.20-00 Washington, DC 20224 9100.28-00
Number: 200007010
Person to Contact:
Release Date: 2/18/2000 Telephone Number:

Refer Reply To:

CC:DOM:CORP:3-PLR-112863-99
Date:
November 16, 1999

LEGEND

Parent
=

Subsidiary =

Company Official =

Outside Tax
Professionals =

Authorized
Representatives =

Business A =

Date A
=
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Date B
=

Date C
=

$Y
=

This is in response to your authorized representatives’ letter dated July 9, 1999, requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations to file a statement. Parent (as the common parent of the consolidated group) is requesting the extension of time to file a statement of allowed loss under § 1.1502-20(c)(3) (sometimes referred to as the "Election"), for its taxable year ending on Date A. The Election is with respect to the portion of the alleged worthless stock loss (on Parent's stock of Subsidiary) that Parent may otherwise deduct under § 165(g) of the Internal Revenue Code. Additional information was received in a letter dated October 4, 1999. The material information is summarized below.

Parent is the common parent of a consolidated group that has a taxable year ending on the Sunday nearest December 31st, and that uses the accrual method of accounting. Subsidiary was wholly owned by Parent and included in Parent's consolidated Federal income tax return. During the fourth quarter of its taxable year ending on Date A, Parent liquidated Subsidiary.

On Date B, Parent filed its consolidated Federal income tax return for its taxable year ending on Date A. On the return, Parent deducted $Y as an ordinary loss under § 165(g)(3), which represents that portion of its basis in the stock of Subsidiary that it is otherwise permitted by § 1.1502-20(c) to deduct. Parent did not reattribute any of Subsidiary's losses to itself pursuant to § 1.1502-20(g). Parent represents that it filed its return for its taxable year ending on Date A consistently with the Election. However, for various reasons, Parent did not attach the Election to the return or otherwise file it. The Service is not examining Parent's return for its taxable year ending on Date A.

Parent represents that Subsidiary's stock became worthless during its taxable year ending on Date A (which is after February 1, 1991, the effective date of § 1.1502-20), and that it is entitled to a worthless stock deduction under § 165(g) for its Subsidiary stock. Parent also represents that part of the § 165(g) loss is disallowed under §§ 1.1502-20(a)(1) and 1.1502-20(c)(1), and that part is allowable as a deduction under § 1.1502-20(c)(1). Finally, Parent represents that the amount of the loss disallowed and the amount of the loss allowable was determined in accordance with § 1.1502-20(c).

The Election was due on Date B. However, for various reasons the Election was not attached to the return or otherwise filed. On or about Date C (which was after the due
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date for the Election), the failure to file the Election was discovered. Subsequently, this request was submitted to the Service, under § 301.9100-1, for an extension of time to file the Election. The period of limitations on assessments under § 6501(a) has not expired for Parent's (and Subsidiary's) taxable year in which the liquidation and alleged loss occurred, the taxable years in which the Election should have been filed, or any taxable years that would have been affected by the Election had it been timely filed.

Parent, as the common parent of the consolidated group, was required by § 1.1502-20(c)(3) to attach the Election to its return for the year of disposition1, in order to deduct the amount (if any) of the loss recognized on the disposition that is not disallowed under § 1.1502-20(c).

Section 1.1502-20(a)(1) provides that, as a general rule, no deduction is allowed for any loss recognized by a member of a consolidated group with respect to the disposition of stock of a subsidiary. Section 1.1502-20(a)(2) provides that a disposition means any event in which gain or loss is recognized, in whole or in part (e.g., a worthless stock loss). Section 1.1502-20(h) provides that, as a general rule, § 1.1502-20 applies with respect to dispositions on or after February 1, 1991.

Section 1.1502-20(c)(1) provides, as a general rule, that the amount of loss disallowed under § 1.1502-20(a)(1), and the amount of basis reduction under § 1.1502- 20(b)(1) with respect to a share of stock, shall not exceed an amount determined by a specified formula. Section 1.1502-20(c)(3) provides that the § 1.1502-20(c)(1) limitation on the amount of a loss disallowed and basis reduction made applies only if the statement specified in § 1.1502-20(c)(3), and entitled "ALLOWED LOSS UNDER SECTION 1.1502- 20(c)," is filed with the taxpayer's return for the year of disposition or deconsolidation.

Section 1.1502-77(a) provides that the common parent, for all purposes (other than for several purposes not relevant here), shall be the sole agent for each subsidiary in the group, duly authorized to act in its own name in all matters relating to the tax liability of the consolidated return year.

Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I, provided the taxpayer demonstrates to the satisfaction of the Commissioner that:

(1) The taxpayer acted reasonably and in good faith, and,

1
Which, allegedly, is the taxable year that Parent’s Subsidiary stock became worthless and in which Parent claimed a worthless stock deduction under § 165(g).
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(2) Granting relief will not prejudice the interests of the government.

Section 301.9100-1(b) defines the term "regulatory election" as including an election whose due date is prescribed by a regulation, revenue ruling, revenue procedure, notice, or announcement. Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make a regulatory election. Section 301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of § 301.9100-2. Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. Section 301.9100-3(a).

In this case, the time for filing the Election was fixed by the regulations (i.e., § 1.1502-20(c)(3)). Therefore, the Commissioner has discretionary authority under § 301.9100-1 to grant an extension of time for Parent to file the Election, provided that Parent shows it acted reasonably and in good faith, that the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and that granting relief will not prejudice the interests of the government.

Information, affidavits, and representations submitted by Company Official, Outside Tax Professionals, and Authorized Representatives explain the circumstances that resulted in the failure to file the Election. The information establishes that Outside Tax Professionals were responsible for the election, that Parent relied on them timely to make the Election, and that the government will not be prejudiced if relief is granted. See § 301.9100-3(b)(1)(v).

Based on the facts and information submitted, including the representations that have been made, we conclude that Parent acted reasonably and in good faith in failing timely to file the Election, that the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and that granting relief will not prejudice the interests of the government. Accordingly, we grant an extension of time under § 301.9100-1, until 30 days from the date of issuance of this letter, for Parent (as the common parent of the consolidated group) to file the Election.

The above extension of time is conditioned on: (1) Parent's having had a valid disposition of the stock of Subsidiary in its taxable year ending on Date A (i.e., that, in fact, Parent's stock in Subsidiary became worthless in its taxable year ending on Date A); and (2) the taxpayers' (Parent's and Subsidiary's) tax liability being not lower, in the aggregate, for all years to which the Election applies, than it would have been if the Election had been timely filed (taking into account the time value of money). No opinion is expressed as to the taxpayers' tax liability for the years involved. A determination thereof will be made by the District Director's office upon audit or examination of the Federal income tax returns involved. Furthermore, no opinion is expressed as to the Federal income tax effect, if any,
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if it is determined that the taxpayers’ liability is lower. Section 301.9100-3(c).

We express no opinion as to: (1) whether Subsidiary’s stock was worthless; (2) if Subsidiary’s stock was worthless, when it became worthless; (3) if Subsidiary’s stock was worthless, whether Parent is entitled to take a deduction under § 165(g); (4) if Subsidiary's stock was worthless and Parent was entitled to take a deduction under § 165(g), as to the amount of the deduction (if any) and when Parent was entitled to take the deduction (if at all); (5) if Subsidiary's stock was worthless and Parent was entitled to take a deduction under § 165(g), whether same constituted a disposition within the meaning of § 1.1502- 20(a)(2); (6) if such constituted a disposition, whether Parent recognized a loss on such disposition; and (7) if such constituted a disposition and Parent recognized a loss thereon, as to the amount of loss (if any), and as to the amount of the loss (if any) disallowed and/or allowed under § 1.1502-20(c)(1) (i.e., computed without taking into account the requirement under § 1.1502-20(c)(3) or reattribution).

Parent should file the Election in accordance with § 1.1502-20(c)(3). That is, Parent must amend its return for its taxable year ending on Date A to attach to such return the § 1.1502-20(c)(3) statement and a copy of this letter. See § 1.1502-20(c)(3).

In addition, no opinion is expressed as to the tax effects or consequences of filing the Election late under the provisions of any other section of the Code and regulations, or as to the tax treatment of any conditions existing at the time of, or resulting from, filing the Election late that are not specifically set forth in the above ruling. For purposes of granting relief under § 301.9100-1, we relied on certain statements and representations made by the taxpayer, its employees and its representatives. However, the District Director should verify all essential facts. In addition, notwithstanding that an extension is granted under § 301.9100-1 to file the Election, penalties and interest that would otherwise be applicable, if any, continue to apply.

Copies of this letter are being sent to the authorized representatives designated on your power of attorney.

This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Sincerely yours,

Assistant Chief Counsel (Corporate) by:
Counsel to the Assistant
Chief Counsel (Corporate)