PLR 200351001: Corporate group gets extra time to elect consolidated filing

Plain-English summary

A newly formed parent and four subsidiaries missed the deadline to elect consolidated federal income tax filing. The IRS found that they had reasonably relied on a qualified tax professional and requested relief before the IRS discovered the omission. It granted 60 days from the letter date to file a consolidated return with the required Forms 851 and 1122. The extension was conditioned on their combined tax liability not being lower than it would have been with a timely election. The IRS did not decide whether the group substantively qualified to file a consolidated return, and otherwise applicable penalties and interest still applied.

Ruling snapshot

• Question: Could the parent and subsidiaries file their consolidated return election after the deadline?
• Outcome: Approved a 60 day extension, subject to the stated tax liability condition.
• Key authorities: IRC § 1502; Treas. Reg. §§ 1.1502-75(a)(1), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200351001
Release Date: 12/19/2003
Index Number: 1502.75-00, 9100.20-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:CORP:B04 – PLR-146049-03
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Date:
-------------------------------------------- September 15, 2003
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LEGEND

Parent = ---------------------------------------------
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Subsidiary 1 = --------------------------
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Subsidiary 2 = -----------------------------------
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Subsidiary 3 = -----------------------
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Subsidiary 4 = -------------------------
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Date A = ------------------

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Date B = ---------------------

Date C = ---------------------------

Company Official = --------------------------------------------------------------
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Tax Professional = -------------------------------------
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Dear -----------------

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

This letter responds to a letter dated July 28, 2003, submitted on behalf of Parent, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election. The extension is being requested for Parent, Subsidiary 1, Subsidiary 2, Subsidiary 3, and Subsidiary 4 to make an election to file a consolidated federal income tax return, with Parent as the common parent, under § 1.1502-75(a)(1) (hereinafter referred to as (“the Election”)), effective for the group’s taxable year ending on Date C. The material information is summarized below.

On Date A, Parent was formed as a holding company. On Date B, all of the shares of Subsidiary 1, Subsidiary 2, Subsidiary 3, and Subsidiary 4 (together the “Subsidiaries”) were contributed to Parent, whereby Parent became the sole shareholder of the Subsidiaries. As of Date B, the Subsidiaries became includible members of the Parent affiliated group.

An election under § 1.1502-75(a)(1) to file a consolidated return for the taxable year ending Date C was required to be filed by the due date of Parent’s return (including extensions), but for various reasons the Election was not timely filed. The statute of limitations on assessment under § 6501(a) has not run for Parent’s or the Subsidiaries’ taxable year for which they want to make the Election or for any taxable year that would be affected by the Election had it been timely filed.

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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.

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., § 1.1502-75(a)(1)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Parent and the Subsidiaries to file the Election, provided that 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 Official, and Tax Professional explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that Parent and the Subsidiaries reasonably relied on a qualified tax professional who failed to make, or advise them to make, the Election, the request for relief was filed before the failure to make the Election was discovered by the Internal Revenue Service, and that the government will not be prejudiced if relief is granted. See §§ 301.9100-3(b)(1)(i) and (v).

Based on the facts and information submitted, including the representations made, we conclude that Parent and the Subsidiaries 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 60 days from the date on this

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letter, for Parent and the Subsidiaries to file the Election by filing a consolidated return for its taxable year ending Date C, including Forms 851 and 1122. A copy of this letter should be attached to the return.

The above extension of time is conditioned on the taxpayers' (Parent's and Subsidiaries’) 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 the Subsidiaries qualify substantively to file a consolidated return, or whether the Date B transfer of the stock of the Subsidiaries to Parent constituted a reverse acquisition. 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, Tax Professional, and Company Official. 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) requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, copies of this letter are being sent to Parent and to a second taxpayer representative.

Sincerely,

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

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