PLR 200551010: Consolidated group granted late loss carryback waiver election

Plain-English summary

A consolidated group meant to waive the carryback period for a consolidated net operating loss, but its timely return did not include a valid election. The IRS found that the group had reasonably relied on a qualified tax professional and that an extension would not prejudice the government. It granted 45 days from the letter to file the election and directed the taxpayer to attach the letter. Relief was conditional on the group's aggregate tax liability not being lower than if it had filed the election on time, taking the time value of money into account. The IRS did not determine the amount of the loss.

Ruling snapshot

• Question: Could the group make its consolidated loss carryback waiver election late?
• Outcome: Approved. The group received a 45-day extension subject to the stated condition.
• Key authorities: IRC § 172(b)(3); Treas. Reg. §§ 1.1502-21(b)(3)(i), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200551010
Third Party Communication: None
Release Date: 12/23/2005
Date of Communication: Not Applicable
Index Number: 1502.21-00, 9100.22-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:CORP:B01
PLR-123434-05
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Date:
September 15, 2005

Taxpayer = ---------------------------------
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Subsidiary = ----------------------------------------

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

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

Date 3 = ---------------------

Date 4 = --------------------------

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

This letter responds to a letter dated April 28, 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 being requested for Taxpayer to file an election under § 1.1502-21(b)(3)(i) of the Income Tax Regulations (as in effect for the tax year at issue) to relinquish the entire carryback period for the consolidated net operating loss ("CNOL") of the consolidated group of which Taxpayer was the common parent for the tax year ending Date 1. Additional

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information was submitted in letters dated June 2, June 16, August 30, and September 1, 2005. The material information submitted for consideration is summarized below.

Taxpayer was the common parent of a consolidated group, which sustained a CNOL in the tax year ending Date 1. It has been represented that, except for Subsidiary, no corporation which was a member of Taxpayer's consolidated group at any time during the tax year ending Date 1, had a separate return year (within the meaning of § 1.1502-1(e)) at any time during the carryback period. It has been further represented by the appropriate parties that no portion of the CNOL has been carried back nor will be carried back to a prior consolidated return year of Taxpayer’s consolidated group nor a prior separate return year of Subsidiary.

Taxpayer intended to relinquish the carryback period for its consolidated group's CNOL on its tax return for the tax year ending Date 1. The return was timely filed, consistent with a valid election having been made. However, for various reasons, a valid election was not filed. Subsequent to Date 2, the date that the return was filed, 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 election should have been filed. Taxpayer has consented to extend the period of limitations on assessment for the tax year ending Date 3 until Date 4.

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 identification number of common parent) IS THE COMMON PARENT." Section 1.1502- 21(b)(3)(i) provides that the statement must be filed with the group's income tax return for the consolidated return 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 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

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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., § 1.1502-21(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, Tax Professional, and Company Official 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 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 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 of §§ 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 ending Date 1, as described above. A copy of this letter should be attached to the election.

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 the Federal income tax effect, if any, if it is determined that the consolidated group's tax liability is lower. Section 301.9100-3(c).

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 the election late that are not specifically set forth in the above ruling. Specifically, no opinion is expressed as to the amount, if any, of the CNOL for the tax year ending Date

1. 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 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.

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This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

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

Sincerely,

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

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