PLR 200518050: Group received time to file election affecting loss limitation value

Plain-English summary

A parent company and controlled foreign subsidiaries missed the deadline for an election to restore value among controlled group members when calculating an IRC § 382 loss limitation. The parent later merged into a successor company. The IRS found that the parent had reasonably relied on a qualified tax professional and granted the successor and subsidiaries 45 days to file the election. Relief was conditioned on the group's aggregate tax liability being no lower than it would have been with a timely election. The IRS did not decide whether an ownership change occurred, how much value could be restored, or the amount of any net operating losses.

Ruling snapshot

• Question: Could the group file a late controlled group value restoration election under § 382 regulations?
• Outcome: Approved: a 45-day extension, subject to the stated aggregate tax liability condition.
• Key authorities: IRC § 382; Treas. Reg. §§ 1.382-8(h), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200518050
Third Party Communication: None
Release Date: 5/6/2005
Date of Communication: Not Applicable
Index Numbers: 9100.22-00, 382.12-16
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:CORP:B04
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PLR-155081-04
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Date:
January 14, 2005
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Legend

Parent’s Successor = ----------------------------
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Parent = -------------------------
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Electing Subs = --------------------------------------------------
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State = -------------

Year = -------

Date 1 = ----------------------

Date 2 = -------------------------------------

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

This letter responds to a letter dated October 18, 2004, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election. The extension is being requested in order to allow Parent (by Parent’s Successor) and Electing 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 subsequent correspondence dated December 6, 2004 and January 10, 2005. The material information is summarized below.

In Year, Parent was a State corporation and the common parent of an affiliated group which filed a consolidated Federal income tax return. In Year, all of the Electing Subs were component members of Parent’s controlled group within the meaning of §§ 1.382-8(e)(2) and (3). Electing Subs are all controlled foreign corporations as defined in § 957(a) and are not engaged in the conduct of a trade or business in the United States and did not file a United States Federal income tax return.

Parent experienced a § 382 ownership change on Date 1. Parent’s consolidated group generated a net operating loss (“NOL”) in Year. On Date 2, Parent merged into Parent’s Successor.

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 § 382 limitation for such year. Under § 382(b)(1), the § 382 limitation is determined by multiplying the value of the old loss corporation by the 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. For purposes of applying § 1.382-8, a consolidated group, loss group, or loss subgroup is treated as a single corporation pursuant to § 1.382-8(f). Component members of a controlled group can elect under § 1.382-8(c)(2) to restore some or all of the value to another component member. The election to restore value is made by 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 1. However, for various reasons, Parent and Electing 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
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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 (by Parent’s Successor) and Electing Subs to file the Election, provided they show 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 government.

Information, affidavits, and representations submitted by Parent’s Successor, Company Official and Tax Professional explain the circumstances that resulted in the failure to timely file the Election. The information establishes that Parent reasonably relied on a qualified tax professional who failed to make, or advise Parent 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 (by Parent’s Successor) and Electing Subs have shown 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. Accordingly, an extension of time is granted under § 301.9100-3 until 45 days from the date on this letter for Parent (by Parent’s Successor) and Electing Subs to file the Election.

The above extension of time is conditioned on the taxpayers’ (Parent’s (and its successor) and the members of its controlled group’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).

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 Electing Subs were 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 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 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’s Successor, Company Official, and Tax Professional under penalties of perjury. However, the Director should verify all
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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 ruling is directed only to the taxpayer 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, a copy of this letter is being sent to both of your authorized representatives.

A copy of this letter must be attached to any income tax return to which it is relevant.

Sincerely,

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

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