PLR 200731026: Late dual consolidated loss election filings allowed

Plain-English summary

A taxpayer's foreign branch generated dual consolidated losses over four years, but its tax advisers failed to tell it to attach the required elections and agreements to its returns. The IRS found that the standards for discretionary late election relief were met and gave the taxpayer 60 days to file those documents. It said annual certifications were unnecessary for this branch under the cited separate unit rule. The extension did not decide whether the taxpayer was otherwise eligible for the election agreements, including under rules concerning foreign mirror legislation.

Ruling snapshot

• Question: May the taxpayer file late elections and agreements for four years of dual consolidated losses?
• Outcome: A 60 day extension was granted, with eligibility otherwise unresolved.
• Key authorities: Treas. Reg. §§ 1.1503-2(g)(2), 1.1503-2T(g)(2), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200731026
Release Date: 8/3/2007
Index Number: 9100.22-00, 1503.04-04
Person To Contact:
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Refer Reply To:
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CC:INTL
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PLR-158483-06
Date:
May 2, 2007

Taxpayer = -----------------------------------------
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Entity 1 = ------------------------------------------------------------
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Year 1 = ---------------------------------------------

Year 2 = --------------------------------------------

Year 3 = --------------------------------------------

Year 4 = --------------------------------------------

Country A = ---------------------

CPA Firm 1 = -------------------

CPA Firm 2
=

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

This is in response to a letter dated December 15, 2006, from your authorized representative requesting an extension of time under Treas. Reg. § 301.9100-3 for Taxpayer to file elections and agreements under Treas. Reg. § 1.1503-2(g)(2)(i) or Treas. Reg. § 1.1503-2T(g)(2)(i), as applicable, with respect to dual consolidated losses (as defined in Treas. Reg. §1.1503-2(c)(5)) incurred in Years 1 through 4. The information submitted for consideration is substantially as set forth below.
PLR-158483-06
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The ruling contained in this letter is predicated upon facts and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. This office has not verified any of the material submitted in support of the request for a ruling. Verification of the factual information, representations, and other data may be required as a part of the audit process.

Entity 1 is disregarded as an entity separate from its owner. The interest in Entity 1 is a hybrid entity separate unit as described in Treas. Reg. § 1.1503-2(c)(4). Entity 1 has activities in Country A that constitute a foreign branch (“Entity 1 Branch”) within the meaning of Treas. Reg. § 1.367(a)-6T(g). Entity 1 Branch is a separate unit described in Treas. Reg. § 1.1503-2(c)(3)(i)(A). Dual consolidated losses were attributable to Entity 1 Branch in Years 1 through 4. No dual consolidated losses were attributable to the interest in Entity 1.

Taxpayer prepared its tax return for Year 1 and engaged CPA Firm 1 to review the return. Taxpayer prepared its tax returns for Years 2 through 4 and engaged CPA Firm 2 to review the returns. CPA Firm 1 and CPA Firm 2 failed to advise Taxpayer of the need to include elections and agreements under Treas. Reg. § 1.1503-2(g)(2)(i) or Treas. Reg. § 1.1503-2T(g)(2)(i), as applicable, with respect to dual consolidated losses incurred in Years 1 through 4.

Taxpayer represents that the income tax laws of Country A do not deny the use of losses, expenses, or deductions of Entity 1 Branch to offset income of another person because the dual resident corporation or separate unit is also subject to income taxation by another country on its worldwide income or on a residence basis.

Treas. Reg. § 301.9100-1(c) provides that the Commissioner has discretion to grant a taxpayer a reasonable extension of time, under the rules set forth in Treas. Reg.
§ 301.9100-3, to make a regulatory election under all subtitles of the Internal Revenue Code, except subtitles E, G, H, and I.

Treas. Reg. § 301.9100-1(b) provides that an election includes an application for relief in respect of tax, and defines a regulatory election as an election whose due date is prescribed by a regulation, a revenue ruling, revenue procedure, notice, or announcement.

Treas. Reg. § 301.9100-3(a) provides that requests for relief subject to this section will be granted when the taxpayer provides the evidence (including affidavits described in Treas. Reg. § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.

In the present situation, the filings described in Treas. Reg. § 1.1503-2(g)(2) and Treas. Reg. § 1.1503-2T(g)(2) are regulatory elections as defined in Treas. Reg. § 301.9100- 1(b). Therefore, the Commissioner has discretionary authority under Treas. Reg.
PLR-158483-06
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§ 301.9100-1(c) to grant Taxpayer an extension of time, provided that Taxpayer satisfies the rules set forth in Treas. Reg. § 301.9100-3(a).

Based on the facts and information submitted, we conclude that Taxpayer satisfies Treas. Reg. § 301.9100-3(a). Accordingly, Taxpayer is granted an extension of time of 60 days from the date of this ruling letter to file the above described elections and agreements. Taxpayer is not required to file annual certifications with respect to losses attributable to Entity 1 Branch because Entity 1 Branch is a separate unit described in Treas. Reg. § 1.1503-2(c)(3)(i)(A) and, therefore, an extension of time is not necessary in this regard. Treas. Reg. § 1.1503-2(g)(2)(vi)(C).

The granting of an extension of time is not a determination that Taxpayer is otherwise eligible to file the election agreement. Treas. Reg. § 301.9100-1(a). For example, a taxpayer that is subject to mirror legislation enacted by a foreign country may be ineligible to file election agreements pursuant to Treas. Reg. § 1.1503-2(c)(15)(iv).

A copy of this ruling letter should be associated with the elections that are the subject of this ruling.

This ruling is directed only to the taxpayer who requested it. I.R.C. § 6110(k)(3) provides that it may not be used or cited as precedent. No ruling has been requested, and none is expressed, as to the application of any other section of the Code or regulations to the facts presented.

Pursuant to a power of attorney on file in this office, a copy of this ruling letter is being furnished to Taxpayer’s authorized representatives.

Sincerely,

____
Richard L. Chewning
Senior Counsel
CC:INTL:Br3