PLR 200118036: Parent gets more time to file subsidiaries' LIFO election forms

Plain-English summary

Two subsidiaries continued using the last-in, first-out inventory method after their parent made a section 338 election. A question arose over whether that election meant the subsidiaries needed new Forms 970 to preserve their LIFO elections. The parent requested extra time to file the forms for both subsidiaries. The IRS found that the parent acted reasonably and in good faith and that the extensions would not prejudice the government. It granted 30 days from the letter date to file the forms. The IRS expressly did not decide whether either subsidiary was required to file a new Form 970 or whether its LIFO method was valid.

Ruling snapshot

• Question: May the parent file Forms 970 for two subsidiaries after the applicable deadline?
• Outcome: Approved: 30 additional days to file.
• Key authorities: IRC § 472; Treas. Reg. §§ 1.472-3, 301.9100-3.

Full text (IRS public release)

INTERNAL REVENUE SERVICE
Department of the Treasury
Washington, DC 20224
Number: 200118036
Release Date: 5/4/2001
Index Numbers: 472.01-00
9100.11-00

Refer Reply to:
CC:ITA:B07/PLR-129023-00
PLR-129026-00
Date: February 5, 2001

LEGEND:

A
=

B
=

C
=

Date 1 =

Date 2 =

Dear
:

This letter is in reply to a request, submitted on behalf of A by A’s authorized representative, for an extension of time under § 301.9100-1(c) of the Procedure and Administration Regulations. Specifically, A has requested extensions of time to file Forms 970, Application To Use LIFO Inventory Method, on behalf of B and C for B's and C's 52-53 tax years ended Date 1. This ruling request is made in accordance with § 301.9100-3.

B and C are wholly-owned subsidiaries of A. On Date 2, the Internal Revenue Service issued a letter ruling to A, granting A an extension of time, pursuant to § 301.9100-1(c), to file an election under § 338 of the Internal Revenue Code.

Prior to the effective date of the § 338 election, B and C used the last-in, first-out (LIFO) method to account for their inventories for both financial reporting purposes and to determine federal taxable income. Subsequent to the effective date of the § 338 election, B and C have continued to use the LIFO method to account for their inventories for both financial reporting purposes and to determine federal taxable income.

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As a consequence of having made an election under § 338, a question has arisen as to whether B and C are required to file Forms 970 to effect valid LIFO elections. Consequently, A has requested that the Commissioner grant it extensions of time to file Forms 970 on behalf of B and C.

Section 472 provides that a taxpayer may use the LIFO method of inventorying goods specified in an application to use such method filed at such time and in such manner as the Secretary may prescribe.

Section 1.472-3 of the Income Tax Regulations provides that the LIFO inventory method may be adopted and used only if the taxpayer files with its income tax return for the tax year as of the close of which the method is first to be used, a statement of its election to use such inventory method. The statement shall be made on Form 970 pursuant to the instructions printed with respect thereto and to the requirements of this section, or in such other manner as may be acceptable to the Commissioner.

Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of the time to make a regulatory election under all subtitles of the Code except subtitles E, G, H, and I, provided that the taxpayer acted reasonably and in good faith and granting relief will not prejudice the interests of the Government. Section 301.9100-1(b) defines a regulatory election as an election whose due date is prescribed by a regulation published in the Federal Register, or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin. An election includes an application for relief in respect of tax and a request to adopt, change, or retain an accounting method or accounting period.

Section 301.9100-2 sets forth rules governing automatic extensions for regulatory elections. If the provisions of § 301.9100-2 do not apply to a taxpayer's situation, the provisions of § 301.9100-3 may apply.

Section 301.9100-3 sets forth the standards that the Commissioner will use in determining whether to grant an extension of time to make a regulatory election. It also sets forth information and representations that must be furnished by the taxpayer to enable the Service to determine whether the taxpayer has satisfied these standards. The standards to be applied are whether the taxpayer acted reasonably and in good faith and whether granting relief would prejudice the interests of the Government.

Under § 301.9100-3(b)(1)(i), a taxpayer that applies for relief for failure to make an election before the failure is discovered by the Service ordinarily will be deemed to have acted reasonably and in good faith. However, pursuant to § 301.9100-3(b)(3), a taxpayer will not be considered to have acted reasonably and in good faith if the taxpayer seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under § 6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested or if the taxpayer was informed in all material respects of the required election and related tax consequences and chose not to make the election. Furthermore, a taxpayer ordinarily

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will not be considered to have acted reasonably and in good faith if the taxpayer uses hindsight in requesting relief.

Section 301.9100-3(c)(1)(i) provides that 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 tax years affected by the regulatory election than the taxpayer would have had if the election had been timely made (taking into account the time value of money). Likewise, 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.

Section 301.9100-3(c)(1)(ii) provides that the interests of the Government are ordinarily prejudiced if the tax year in which the regulatory election should have been made or any tax year that would have been affected by the election had it been timely made are closed by the period of limitations on assessment before the taxpayer receives the ruling granting relief under § 301.9100-1(c).

The information and representations furnished by A establishes that it has acted reasonably and in good faith in this request. Furthermore, granting extensions will not prejudice the interests of the Government. Accordingly, extensions of time are hereby granted to A to file Forms 970 on behalf of B and C for their tax years ended Date 1. Thess extensions shall be for a period of 30 days from the date of this ruling. Please attach a copy of this ruling to the Forms 970 when they are filed.

No opinion is expressed as to the application of any other provisions of the Code or the regulations which may be applicable. Specifically, no opinion is expressed in regard to B's or C’s use of the LIFO method or whether B and C are presently required to file Forms 970 to effect valid LIFO elections.

Pursuant to a power of attorney on file in this office, copies of this ruling are being sent to A’s authorized representative.

This ruling 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,
James Atkinson
Deputy Associate Chief Counsel
(Income Tax and Accounting)