PLR 200022036: Parent gets extension to file a consolidated return

Plain-English summary

Two subsidiaries filed a consolidated return, but their parent company was omitted. The group requested more time to elect consolidated filing with the parent as the common parent. The IRS found that the group acted reasonably and in good faith and granted 30 days for the parent to file the return and the subsidiaries' consent forms. The relief is conditional: the group's total tax liability for affected years cannot be lower than it would have been with a timely election. The IRS did not decide whether the corporations otherwise qualified to file a consolidated return.

Ruling snapshot

• Question: May the parent and subsidiaries make a late consolidated return election?
• Outcome: Approved for 30 days, subject to the aggregate tax liability condition.
• Key authorities: IRC §§ 1501 and 1502; Treas. Reg. §§ 1.1502-75 and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 9100.20-00 Washington, DC 20224
1502.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
Number: 200022036
CC:DOM:CORP:3 - PLR-119137-99
Date:
Release Date: 6/2/2000
March 6, 2000

Parent
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Sub 1
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Sub 2
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Company Official X
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Authorized Representative =

state m
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Date A
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Date B
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Date C
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Date D
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Date E
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Month
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This responds to your Authorized Representative’s letter dated December 2, 1999 requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations to file an election. The extension is being requested for Parent, Sub 1, and Sub 2 to file a consolidated federal income tax return, with Parent as the common parent, under § 1.1502-75(a)(1) of the Income Tax Regulations, effective for their taxable year ending on Date C (hereinafter referred to as “the Election”). The material information submitted is summarized below.

Parent is an inactive holding company, incorporated in state m on Date A. On Date B, Parent acquired the stock of Sub 1 and during the taxable year ending on Date C, Sub 1 formed Sub 2. All are domestic corporations with a 52-53 week taxable year ending the Sunday closest to the end of Month. After the formation of Sub 2, Company Official X was advised by Authorized Representative to file a consolidated tax return, which was filed for Sub 1 and Sub 2 on Date E.

Parent was left off the return. On Date D (which is after the due date for the Election), Company Official X discovered the omission of Parent and subsequently this request under §§ 301.9100-1 and 301.9100-3 was submitted to the Service. The statute of limitations on assessment under § 6501(a) has not run for Parent's, Sub 1's, or Sub 2's taxable year for which they want to make the Election or for any taxable year that would be affected by the Election.

Section 1501 provides that an affiliated group of corporations has the privilege of making a consolidated return with respect to the income tax imposed by chapter 1 of the Code for the taxable year, in lieu of filing separate returns. The making of a consolidated return is subject to the condition that all corporations which at any time during the taxable year have been members of the affiliated group consent to the consolidated return regulations prescribed under § 1502 prior to the day prescribed by law for the filing of such return. The making of a consolidated return is considered such consent.

Section 1.1502-75(a)(1) provides that a group which did not file a consolidated return for the immediately preceding taxable year may file a consolidated return in lieu of separate returns for the taxable year, provided that each corporation which has been a member of the group during any part of the taxable year for which the consolidated return is to be filed consents to the regulations under § 1502. If a group wishes to exercise its privilege of filing a consolidated return, such consolidated return must be filed not later than the last day prescribed by law (including extensions of time) for filing the common parent’s return.

Section 1.1502-75(b) provides that a corporation consents to filing a consolidated return for the first consolidated year by joining in the making of the consolidated return for such year. A corporation shall be deemed to have joined in the making of such return if it files a Form 1122.

Section 1.1502-75(h)(1) provides that the consolidated return shall be made on Form 1120 for the group by the common parent corporation. Section 1.1502-75(h)(2) provides that if a group wishes to exercise its privilege of filing a consolidated return,

2 then a Form 1122 must be executed by each subsidiary and must be attached to the consolidated return for such year. Form 1122 is not required for a taxable year if a consolidated return was filed by the group for the immediately preceding taxable year.

Section 1.1502-77(a) provides that the common parent for all purposes (other than for purposes not relevant here) shall be duly authorized to act in its own name in all matters relating to the tax liability for 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.

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. 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 is fixed by the regulations (i.e.
§§ 1.1502-75(a)(1), 1.1502-75(b) and 1.1502-75(h)). Therefore the Commissioner has discretionary authority under § 301.9100-1 to grant an extension of time for Parent, Sub 1 and Sub 2 to file the Election, provided that Parent, Sub 1 and Sub 2 can show good cause for not timely filing the Election, the other requirements of § 301.9100-1(a) are satisfied, and granting relief will not prejudice the interests of the government.

Information, affidavits, and representations submitted by Parent, Company Official X and Authorized Representative explain the circumstances that resulted in the failure to timely file the Election. The information also establishes that tax professionals were responsible for the Election and that Parent, Sub 1 and Sub 2 relied on them to timely make the Election, and that the government will not be prejudiced if relief is granted. See § 301.9100-3(b).
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Based on the facts and information submitted, including the representations made, we conclude that Parent, Sub 1, and Sub 2 have shown they acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Accordingly, an extension of time is granted under § 301.9100-1, until 30 days from the date of issuance of this letter, for Parent to file the Election (by filing a consolidated return, with

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Parent as the common parent, and attaching a Form 1122 for each of Sub 1 and Sub 2) for their taxable year ending on Date C.

The above extension of time is conditioned on the taxpayers’ (Parent’s, Sub 1's, and Sub 2'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 made (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 of the federal income tax returns involved. Further, no opinion is expressed as to the federal income tax effect, if any, if it is determined that the taxpayers’ liability is lower. Section 301.9100-3(c).

Parent must file a consolidated return for its taxable year ending on Date C and attach thereto the Election (a Form 1122, executed on or after the date of this letter granting an extension, for Sub 1 and Sub 2), pursuant to the instructions in § 1.1502- 75(b). A copy of this letter should also be attached.

We express no opinion with respect to whether, in fact, Parent, Sub 1 and Sub 2 qualify substantively to file a consolidated return. In addition, we express no opinion 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 effects 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(a), we have relied on certain statements and representations made by Company Official X and Authorized Representative. However, the District Director should verify all essential facts. In addition, notwithstanding that an extension is granted under § 301.9100-1(a) to file the Election, penalties and interest, if any, that would otherwise be applicable shall still apply.

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

Pursuant to a power of attorney on file in this office, a copy of this letter has been sent to the Authorized Representative.

Sincerely yours,
Philip J. Levine
Assistant Chief Counsel (Corporate)