PLR 200348022: Controlled group receives more time for section 382 value election

Plain-English summary

A parent corporation and foreign subsidiaries missed the deadline to elect how value would be restored within their controlled group after an ownership change. The election affects the IRC § 382 limit on using losses from before the change. The IRS found that the group reasonably relied on a tax professional and granted 45 days from the letter date to file the election under Treasury Regulation § 1.382-8(h). The extension is conditioned on the group's combined tax liability being no lower than if it had filed on time. The IRS did not determine whether the ownership change occurred or how much value or loss was involved.

Ruling snapshot

• Question: May the controlled group file its section 382 value restoration election after the deadline?
• Outcome: Approved a 45-day extension, subject to the tax liability condition.
• Key authorities: IRC § 382; Treas. Reg. §§ 1.382-8, 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200348022
Washington, DC 20224
Release Date: 11/28/2003
Index Number: 382.00-00; 9100.00-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:CORP:B01-PLR-139788-03
Date:
August 26, 2003

Parent
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Foreign Subs
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Date 1
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Date 2
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Company Official
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Dear

This letter responds to a letter submitted on behalf of Parent and a number of its foreign subsidiaries (hereinafter “Foreign Subs”), dated June 24, 2003, requesting an extension of time under § 301.9100-3 of Procedure and Administration Regulations to file an election. The extension is being requested in order to allow Parent and Foreign Subs to file an election to restore value under § 1.382-8(h) of the Income Tax Regulations (hereinafter referred to as “the Election”). Additional information was received in letters dated August 19, 2003, August 21, 2003, and August 25, 2003. The material information submitted for consideration is summarized below.

Parent is the common parent of a consolidated group. Parent and Foreign Subs are component members of a controlled group under § 1.382-8. Parent underwent an ownership change on Date 1. As a result, Parent’s value was reduced under § 1.382-8(c)(1) by the value of the stock of Foreign Subs.

Section 382(a) provides that the amount of the taxable income of any new loss corporation for any post-change year which may be offset by pre-change losses shall not exceed the section 382 limitation for such year. Under § 382(b)(1), the section 382 limitation is determined by multiplying the value of the old loss corporation by the 5
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applicable long term tax-exempt rate. A special rule designed to prevent “double counting” by controlled groups is set forth in § 1.382-8. Section 1.382-8(c)(1) requires the value of the stock of each component member of the controlled group be reduced by the value of the stock owned by that component member in any other component member. Component members of a controlled group can elect under § 1.382-8(c)(2) to restore some or all of the value to the member whose value is reduced under § 1.382-8(c)(1). The election to restore value is made following the procedures set forth in § 1.382-8(h). The election was required to be filed with Parent’s income tax return for its tax year ending Date 2. However, for various reasons, Parent and Foreign Subs failed to make the Election in a timely manner.

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. 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., § 1.382-8(h)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Parent and Foreign Subs to file the Election, provided Parent and Foreign Subs 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 government.

Information, affidavits, and representations submitted by Parent, Foreign Subs, and Company Official explain the circumstances that resulted in the failure to timely file the Election. The information establishes that Parent and Foreign Subs reasonably relied on a qualified tax professional who failed to make, or advise Parent and Foreign Subs to make the Election, and that the interests of 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 made, we conclude that Parent and Foreign Subs 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 § 301.9100-3, until 45 days from the date on this letter, for Parent and Foreign Subs to file the Election. The election is to be filed with the Director who has jurisdiction over Parent’s returns. A copy of this letter should be attached to the Election.
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The above extension of time is conditioned on the taxpayers' (Parent's and the members of its controlled group) 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).

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion with respect to whether an ownership change occurred; whether Parent and Foreign Subs are component members of a controlled group; the amount of value, if any, that may be restored; or as to values or amounts of NOLs. 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 Election late that are not specifically set forth in the above ruling.

For purposes of granting relief under § 301.9100-3 we relied on certain statements and representations made by Parent, Foreign Subs, and Company Official under penalties of perjury. However, the Director should verify all essential facts. Moreover, notwithstanding that the extension is granted under § 301.9100-3 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.

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

Sincerely,

_______
Ken Cohen
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel (Corporate)