PLR 200652039: Consolidated group receives 45 days to elect subsidiary stock-loss rules

Plain-English summary

A consolidated group's parent missed an election to apply specified rules in determining the allowable loss on a subsidiary stock sale. The IRS found that the parent reasonably relied on a qualified tax professional and met the requirements for discretionary filing relief. The parent received 45 days from the letter to amend the return for the year including August 26, 2004, and include the required election statement. Relief was conditioned on the group's aggregate tax liability, including the time value of money, not being lower than if the election had been timely. The IRS did not determine the allowable loss or tax liability, and otherwise applicable penalties and interest continued to apply.

Ruling snapshot

• Question: May the parent file a late election to apply section 1.337(d)-2 to a subsidiary stock loss?
• Outcome: Approved: 45-day extension, subject to the aggregate-tax-liability condition.
• Key authorities: Treas. Reg. §§ 1.1502-20(i)(4), 1.337(d)-2 and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200652039
Third Party Communication: None
Release Date: 12/29/2006
Date of Communication: Not Applicable
Index Number: 1502.20-00, 9100.28-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:CORP:B03
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PLR-139721-06
Date:
September 25, 2006
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Legend

Parent = ---------------------------------------
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Sub 1 = ------------------------
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Sub 2 = ----------------------------------
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Date A = ---------------------------

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

Company Official = ----------------------
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Dear -------------:

This letter responds to a letter dated August 16, 2006, submitted on behalf of Parent, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election. The extension is being requested for Parent to file an election under § 1.1502-20(i)(4) of the Income Tax Regulations to apply

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the provisions described in § 1.1502-20(i)(2)(ii), i.e., § 1.337(d)-2, to determine the allowable losses sustained upon the sale of the stock of a subsidiary member of its consolidated group. The material information submitted for consideration is summarized below.

Parent is the common parent of a consolidated group that included Sub 1 and Sub 2. Parent owned all of the stock (through direct and indirect ownership) of Sub 1, which owned all of the stock of Sub 2. On Date A, Sub 1 sold all of the stock of Sub 2 in a taxable transaction.

The sale resulted in a capital loss reportable on Parent’s tax return for the taxable year ending on Date B. An election under § 1.1502-20(i)(4) to apply the provisions in
§ 1.337(d)-2 was required to be filed with or as part of Parent’s timely filed return for its taxable year that included August 26, 2004. However, for various reasons, a valid election was not filed. Subsequently it was discovered that a valid election was not filed. Accordingly, 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 or for any subsequent taxable year.

Section 1.1502-20(i)(2)(ii) provides that in the case of a disposition of stock of a subsidiary before March 7, 2002, a consolidated group may determine the amount of the member’s allowable loss by making an election to apply the provisions of
§ 1.337(d)-2.

Section 1.1502-20(i)(4) of the regulations provides, in general, that an election to determine allowable loss by applying the provisions described in § 1.1502-20(i)(2)(i) or (ii) is made by including the statement described in § 1.1502-20(i)(4) with or as part of any timely filed (including any extensions) original return for the taxable year that includes August 26, 2004, or with or as part of an amended return filed before the date the original return for the taxable year that includes August 26, 2004, is due (including any extensions).

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

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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- 20(i)(4)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Parent to file the election, provided Parent 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 Parent and Company Official explain the circumstances that resulted in the failure to timely file a valid 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 that have been made, we conclude that Parent 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 Parent to file the election described in § 1.1502-20(i)(4) to apply the provisions of § 1.337(d)-2.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, Parent must amend its return for its taxable year that included August 26, 2004, to include the statement described in
§ 1.1502-20(i)(4). A copy of this letter must be attached to the return and any other relevant return. Alternatively, in lieu of attaching a copy of this letter to the returns, taxpayers filing their returns electronically may attach a statement to the return that provides the date and control number of the letter ruling.

The above extension of time is conditioned on Parent'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 Parent'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 Parent's consolidated group's 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. For purposes of granting relief under § 301.9100- 3, we relied on certain statements and representations made by the

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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 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 your authorized representative.

Sincerely,

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