PLR 200548016: New corporate group gets 90 days to elect consolidated filing

Plain-English summary

A corporation acquired a subsidiary and formed a new affiliated group but failed to make a valid election to file a consolidated federal income tax return for its first year. The IRS found that the parent reasonably relied on a tax professional, requested relief before the IRS found the omission, and would not prejudice the government. It gave the group 90 days to file the consolidated return and subsidiary consent forms. The relief was conditioned on the group's aggregate tax liability across affected years being no lower than it would have been with a timely election, accounting for the time value of money. The IRS did not decide whether the group otherwise qualified to file a consolidated return.

Ruling snapshot

• Question: Could a newly formed affiliated group make a late election to file a consolidated return for its first year?
• Outcome: Approved, 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: 200548016
Third Party Communication: None
Release Date: 12/2/2005
Date of Communication: Not Applicable
Index Number: 9100.20-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:CORP:B02
PLR-141504-05
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Date:
August 30, 2005

TY: ------------------------------------

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

Sub = -------------------------------------------
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Company Official = -------------------------
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Tax Professional = -------------------------
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Taxable Year = -----------------------------------------------------------

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

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

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

This letter responds to a letter dated August 4, 2005, submitted on behalf of Taxpayer, 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
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being requested for Taxpayer and its subsidiaries to make an election to file a consolidated federal income tax return, with Taxpayer as the common parent, under
§ 1.1502-75(a)(1) of the Income Tax Regulations (hereinafter sometimes referred to as the “Election”) effective for Taxable Year. The material information is summarized below.

Prior to Date 1, Sub and its direct and indirect subsidiaries had been members of an affiliated group filing a consolidated federal income tax return with Old Parent as common parent. On Date 1, Taxpayer acquired all of the stock of Sub in exchange for cash. Thus, a new affiliated group that included Sub and its subsidiaries came into existence with Taxpayer as the common parent. Taxpayer has no assets other than the stock of Sub.

An election under § 1.1502-75(a)(1) for the Taxpayer affiliated group to file a consolidated return for Taxable Year, its first taxable year, was due on Date 2. 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 § 310.9100-3, for an extension of time to file the Election. The period of limitations on assessment under § 6501(a) has not expired for any of the Taxpayer’s, Sub’s, or any of Sub’s direct or indirect subsidiaries’ taxable years that would have been 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 301.9100-1(b) defines a regulatory election as an election whose due date is prescribed by a regulation published in the Federal Register, or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin. 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., § 1.1502-75(a)(1)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Taxpayer to file the Election, provided Taxpayer shows 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, that the request for relief was filed before the failure to make the Election was discovered by the Internal Revenue Service, and that the interests of 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 Taxpayer has shown 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. Accordingly, an extension of time is granted under § 301.9100-3, until 90 days from the date on this letter, for Taxpayer to file the Election (by filing a consolidated return, with Taxpayer as the common parent, and attaching a Form 1122 for each of Taxpayer’s subsidiaries) for Taxable Year. A copy of this letter should be attached to the return.

The above extension of time is conditioned on the Taxpayer 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’ (Taxpayer and its subsidiaries) 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, Taxpayer and its subsidiaries qualify substantively to file a consolidated return. In addition, we express no opinion as to the tax 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 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 taxpayers. However, the Director should verify all essential facts. In addition, notwithstanding that an extension is
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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.

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

Sincerely,

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

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