PLR 200135041: Extension granted to elect consolidated return filing

Plain-English summary

A parent corporation and its wholly owned subsidiary missed the deadline to elect consolidated federal income tax return filing after relying on tax professionals. The IRS found that they had acted reasonably and in good faith and that allowing the late election would not prejudice the government. It granted the parent 30 days from the letter's issue date to file the consolidated return with a copy of the ruling attached. Relief was conditioned on the corporations' aggregate tax liability not being lower than it would have been with a timely election, accounting for the time value of money. The IRS did not decide whether they otherwise qualified to file a consolidated return.

Ruling snapshot

• Question: May the corporations make a late election to file a consolidated return?
• Outcome: Approved: 30 days to file, subject to the stated tax liability condition.
• Key authorities: IRC §§ 1501, 1502; Treas. Reg. §§ 1.1502-75(a)(1), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200135041
Washington, DC 20224
Release Date: 8/31/2001
Index Number: 9100.20-00, 1502.75-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:CORP:1-PLR-111610-01
Date:
June 6, 2001

Parent
=

Sub
=

Corp X
=

Date 1
=

Date 2
=

Date 3
=

Date 4
=

Company Officials =

Outside CPA =

Parent’s Authorized =
Representative

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This responds to your letter dated February 13, 2001, 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 and Sub to make an election 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 (hereinafter referred to as "the Election"), effective for their taxable year ending on Date 2. The material information submitted for consideration is summarized below.

Parent and Sub are calendar year corporations. On Date 1, Parent formed Sub, purchased all of the assets of Corp X, and contributed such assets to Sub. At all times Parent has owned all of the stock of Sub.

The Election was due on Date 3, but for various reasons the Election was not filed. On Date 4 (which is after the due date for the Election), Company Officials and Parent’s Authorized Representative discovered that the Election was not timely filed. The statute of limitations on assessment under § 6501(a) has not expired for Parent's or Sub'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 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 (in the manner provided in § 1.1502-75(b)) 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.

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

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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)). Therefore, the Commissioner has discretionary authority under § 301.9100-1 to grant an extension of time for Parent and Sub to file the Election, provided Parent and Sub show 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.

Information, affidavits, and representations submitted by Parent, Company Officials, Parent’s Authorized Representative and Outside CPA explain the circumstances that resulted in the failure to timely file the Election. The information also establishes that Parent and Sub relied on qualified tax professionals, that the tax professionals failed to make, or advise Parent and Sub to make, the Election, and that the government will not be prejudiced if relief is granted. See § 301.9100-3(b).

Based on the facts and information submitted, including the representations made, we conclude that Parent and Sub 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 for the year ending on Date 2). A copy of this letter should be attached to the return.

The above extension of time is conditioned on the taxpayers' (Parent's and Sub’s) tax liability (if any) 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 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).

We express no opinion with respect to whether, in fact, Parent and Sub qualify substantively to file a consolidated return. In addition, we express no opinion as to the tax effects or consequences of filing the return or the Election late under the provisions of any other section of the Code or regulations, or as to the tax treatment of any conditions existing at the time of, or effects resulting from, filing the return or the

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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 Parent, Company Officials, Parent's Authorized Representative, and Outside CPA. However, the Director should verify all essential facts. Moreover, notwithstanding that the extension is granted under § 301.9100-1 to file the Election, any penalties and interest that would otherwise be applicable still apply.

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

Sincerely yours,
Associate Chief Counsel (Corporate)
By: Ken Cohen
Senior Technician Reviewer, Branch 3