PLR 200519041: New parent gets 90 days to elect consolidated tax filing

Plain-English summary

A corporation bought more than 80 percent of another company's stock, creating a new affiliated group. The new parent and its subsidiaries missed the deadline to elect a consolidated federal income tax return for their first year. The IRS found they acted reasonably and in good faith and granted 90 days from the ruling to file a consolidated return with subsidiary consent forms. The extension was conditioned on their aggregate tax liability over the affected years being no lower than it would have been with a timely election. The IRS did not decide whether they substantively qualified to file a consolidated return, and otherwise applicable penalties and interest still applied.

Ruling snapshot

• Question: Could the new affiliated group make a late consolidated return election?
• Outcome: Yes, within 90 days, subject to the 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: 200519041
Third Party Communication: None
Release Date: 5/13/2005
Date of Communication: Not Applicable
Index Number: 9100.20-00
Person To Contact:
-----------------------
--------------------------, ID No. -------------
-------------------
Telephone Number:
---------------------
-----------------------
Refer Reply To:
----------------------------------
CC:CORP:B05
--------------------------------
PLR-161362-04
Date:
March 03, 2005
-

LEGEND

Old Parent = ----------------------

Corp X = -----------------------------------
------------------------------------------------------------

Corp Y = -----------------------
-------------------------------------------------------------------
------------------------------------------------------------

Taxable Year = -------

Date A = -----------------------

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

Corp X Official = --------------------------
----------------------------------------------------------------------
-----------------------------------------------------------------------

Dear --------------:

This letter responds to a letter dated November 24, 2004, submitted on behalf of Corp Y, requesting 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 Corp Y and its subsidiaries to make an election to file a consolidated Federal income tax return, with Corp Y as the common parent, under § 1.1502-75(a)(1)
PLR-161362-04
2

of the Income Tax Regulations (hereinafter referred to as the “Election”), effective for Taxable Year. Additional information was received in a letter dated February 28, 2005. The material information is summarized below.

Corp X, which has two subsidiaries, had been a member of a consolidated group which had Old Parent as the common parent. On Date A, Corp Y purchased over 80 percent of the stock of Corp X from Old Parent. Thus, a new affiliated group that included Corp X and its subsidiaries came into existence with Corp Y as the common parent.

An election under § 1.1502-75(a)(1) for the Corp Y affiliated group to file a consolidated return for Taxable Year, its first taxable year, was due on Date B. However, for various reasons, a valid Election was not filed. After the due date for the Election, it was discovered that the Election had not been filed. Subsequently, this request was submitted, under § 301.9100-3, for an extension of time to file the Election. The period of limitations on assessment under § 6501(a) of the Internal Revenue Code has not expired for Corp X’s, Corp Y’s, or any of their subsidiaries’ taxable years 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.

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 Corp Y and its subsidiaries to file the
PLR-161362-04
3

Election, provided Corp Y and its subsidiaries 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 Corp Y and Corp X Official explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that the request for relief was submitted to the Internal Revenue Service (the “Service”) before the failure to make the Election was discovered by the Service and that the interests of the Government will not be prejudiced if relief is granted. See § 301.9100-3(b)(1)(i).

Based on the facts and information submitted, including the representations made, we conclude that Corp Y and its 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 90 days from the date on this letter, for Corp Y to file the Election (by filing a consolidated return, with Corp Y as the common parent, and attaching a Form 1122 for each of Corp Y’s subsidiaries) for Taxable Year. In addition, a copy of this letter should also be attached to the return.

The above extension of time is conditioned on the taxpayers' (Corp Y's and its 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 appropriate office of the Service 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’ tax liability is lower. Section 301.9100-3(c).

We express no opinion as to whether, in fact, Corp Y and its subsidiaries qualify substantively to file a consolidated return. In addition, we express no opinion as to the tax effects or any other tax consequences of filing the return or 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 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 Corp Y and Corp X Official. However, the appropriate Service office should verify all essential facts. 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 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.
PLR-161362-04
4

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

Sincerely,

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