PLR 200209002: Late election to waive a consolidated loss carryback receives relief

Plain-English summary

A corporation intended to waive the carryback period for its consolidated group's net operating loss, but a valid election was not filed with its return. The IRS found that the corporation had relied on a tax professional and had acted reasonably and in good faith. It granted 45 days from the letter date to file the election under the relief rules in Treasury Regulation § 301.9100-3. The extension is conditioned on the group's aggregate tax liability not being lower than it would have been after a timely election, taking the time value of money into account. The IRS did not decide the group's actual tax liability or other consequences of the late filing.

Ruling snapshot

• Question: May the group file a late election to waive the carryback period for its consolidated net operating loss?
• Outcome: Approved, with 45 days to file and a condition protecting the government's tax position.
• Key authorities: IRC §§ 172 and 1502; Treas. Reg. §§ 1.1502-21(b)(3)(i), 301.9100-1, and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200209002
Washington, DC 20224
Release Date: 3/1/2002
Index Number: 1502.21-00; 9100.00-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:CORP:B03-PLR-135658-01
Date:
July 31, 2001

Taxpayer
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Date 1
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Date 2
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Date 3
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Company Official
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Outside Professional
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State Z
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This letter responds to a letter dated June 27, 2001, requesting, on behalf of Taxpayer, 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 Taxpayer to file an election under § 1.1502-21(b)(3)(i) of the Income Tax Regulations to relinquish the entire carryback period for the consolidated net operating loss (“CNOL”) of the consolidated group of which the Taxpayer was the common parent for the tax year ending Date 1. The material information submitted for consideration is summarized below.

Taxpayer is a State Z corporation. Taxpayer is a calendar year taxpayer and uses the accrual method of accounting. Taxpayer intended to relinquish the carryback period for its consolidated group’s CNOL on its tax return for the tax year ending Date 1. The election was due on Date 2. However, for various reasons, a valid election was not filed. On Date 3 (which is after Date 2), it was discovered that a valid election was not filed. Subsequently, this request was submitted, under § 301.9100-1, for an extension of time to file a valid election. The period of limitations on assessment under § 6501(a) has not expired for the taxable year for which the valid election should have been filed or for any taxable year(s) that would have been affected by the valid election had it been timely filed.
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Section 1.1502-21(b)(3)(i) provides that a consolidated group may elect to relinquish the entire carryback period with respect to a CNOL for any consolidated return year. The election is made in a separate statement entitled “THIS IS AN ELECTION UNDER SECTION 1.1502-21(b)(3)(i) TO WAIVE THE ENTIRE CARRYBACK PERIOD PURSUANT TO SECTION 172(b)(3) FOR THE [insert consolidated return year] CNOLs OF THE CONSOLIDATED GROUP OF WHICH [insert name and employer identification number of common parent] IS THE COMMON PARENT.” Section 1.1502-21(b)(3)(i) provides that the statement must be signed by the common parent and filed with the group’s income tax return for the consolidated return year in which the CNOL arises.

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.

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 extension 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 is fixed by the regulations (i.e, § 1.1502-21(b)(3)(i)). Therefore, the Commissioner has discretionary authority under § 301.9100-1 to grant an extension of time for Taxpayer to file the election, provided Taxpayer establishes it 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 Taxpayer, Company Official, and Outside Professional explain the circumstances that resulted in the failure to timely file the valid election. The information establishes that a tax professional was responsible for the election, that Taxpayer relied on the tax professional to timely 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 Taxpayer has established it acted reasonably and in good faith in failing to timely file the election, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the -3-
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government. Accordingly, we grant an extension of time under § 301.9100-1, until 45 days from the date on this letter, for Taxpayer to file the election with respect to the relinquishment of the entire carryback period for the CNOL for the tax year ending Date 1, as described above.

The above extension of time is conditioned on the Taxpayer’s consolidated group’s tax liability, if any, not being lower, in the aggregate for all years to which the election applies, than it would have been if the election had been made timely (taking into account the time value of money). No opinion is expressed as to the Taxpayer’s consolidated group’s tax liability for the years involved. Further, no opinion is expressed as to the Federal income tax effect, if any, if it is determined that the Taxpayer’s consolidated group’s liability is lower. Section 301.9100-3(c).

Taxpayer should file the election in accordance with § 1.1502-21(b)(3)(i). A copy of this letter should be attached to the election statement.

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 and its representatives. However, all of the essential facts must be verified. 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.

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.

Pursuant to a power of attorney on file in this office, a copy of this letter is being sent to your authorized representative.

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