PLR 200402013: Late election to waive consolidated loss carryback allowed

Plain-English summary

A consolidated corporate group intended to waive the carryback period for a consolidated net operating loss. It filed its return on time and treated the election as effective, but failed to file a valid election statement. The IRS found that the common parent had acted reasonably and in good faith, including by relying on a qualified tax professional, and that relief would not prejudice the government. It gave the parent 45 days to file the election and required amended returns attaching the statement. The extension was conditioned on the group's aggregate tax liability, considering the time value of money, being no lower than if it had elected on time.

Ruling snapshot

• Question: Could the group file its election to waive the entire consolidated loss carryback period after the deadline?
• Outcome: Approved: a 45 day extension was granted, subject to the stated tax liability condition.
• Key authorities: IRC § 172(b)(3); Treas. Reg. §§ 1.1502-21(b)(3)(i) and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200402013
Washington, DC 20224
Release Date: 1/9/2004
Index Number: 9100.22-00; 1502.21-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:CORP:B03 - PLR-116306-03
Date:
September 30, 2003

LEGEND

Taxpayer =

Sub 1
=

Sub 2
=

Sub 3
=

Date 1
=

Date 2
=

Date 3
=

Company Official =

Tax Professional =
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PLR-116306-03

Dear
:

This letter responds to a letter dated February 20, 2003, requesting, on behalf of Taxpayer, an extension of time under § 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 Taxpayer is the common parent for the tax year ended Date 1. The material information submitted for consideration is summarized below.

Taxpayer is the common parent of a consolidated group. Sub 1, Sub 2, and Sub 3 were the only other members of the consolidated group for the tax year ended Date 1, and Sub 1, Sub 2, and Sub 3 have each been members of the group for over ten years. Taxpayer intended to relinquish the carryback period for its consolidated group’s CNOL for its year ending Date 1. The tax return for the year ending Date 1 was timely filed on Date 2, consistent with a valid election having been made. All other relevant returns have also been filed, and future returns will be filed, consistent with a valid election having been made. 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 § 301.9100-3, 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 subsequent taxable year(s).

Section 1.1502-21(b)(3)(i) provides that a consolidated group may elect to relinquish the 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 indentification 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 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 -3-
PLR-116306-03

extensions 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.

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 § 301.9100-3 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 Tax Professional explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that Taxpayer reasonably relied on a qualified tax professional who failed to make, or advise Taxpayer 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 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 §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Accordingly, we grant an extension of time under § 301.9100-3, 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 ended Date 1, as described above.

The above extension of time is conditioned on 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 Taxpayer’s consolidated group’s tax liability for the years involved. A determination thereof will be made 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 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).
Taxpayer’s returns must be amended to attach the election statement required by
§ 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 -4-
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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 the taxpayer and its representatives. However, all of the essential facts must be verified. In addition, notwithstanding that an extension is granted under § 301.9100-3 to file the election, penalties and interest that would otherwise be applicable, if any, continue to apply.

This ruling 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 Taxpayer and a second authorized representative.

Sincerely,

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