PLR 200815002: Parent receives more time to file subsidiary stock loss statement

Plain-English summary

A consolidated group's parent missed the deadline to file a statement needed to claim an allowable loss on stock of a subsidiary it said had become worthless. The parent relied on a qualified tax professional, and it requested relief before the IRS discovered the missed filing. The IRS found reasonable conduct and no expected prejudice to the government, so it gave the parent 60 days to file the statement. Relief was conditioned on the group's aggregate tax liability for affected years being no lower than it would have been with a timely filing. The IRS did not decide whether the subsidiary's stock became worthless or whether the parent qualified for the loss; applicable interest and penalties still applied.

Ruling snapshot

• Question: Could the parent file the loss statement required by temporary regulation § 1.337(d)-2T(c)(3) after the deadline?
• Outcome: Approved: a conditional 60-day filing extension.
• Key authorities: IRC § 165; Temp. Treas. Reg. § 1.337(d)-2T(c); Treas. Reg. § 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200815002
Third Party Communication: None
Release Date: 4/11/2008
Date of Communication: Not Applicable
Index Number: 9100.29-00, 337.16-02
Person To Contact:
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Telephone Number:
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Refer Reply To:
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Date:
January 07, 2008

Parent = ---------------------------
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Subsidiary = ---------------------------------------------
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Date A = ---------------------

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

Company Officials = ------------------------------------
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Tax Professional = -------------------------------
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Dear -------------------

This letter responds to a letter dated December 7, 2007, submitted on behalf of Parent, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election. Parent is requesting an extension to file a statement of allowed loss under § 1.337(d)-2T(c)(3) (sometimes hereinafter referred to as the “Election”). Citations in this letter to regulation §§1.337(d)-2T and 1.1502-80T are to regulations in effect on Date A. The material information is summarized below.

Parent is the common parent of a consolidated group. Through Date A, Subsidiary was a member of the consolidated group and was wholly owned by Parent.
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On Date A, Parent’s investment in Subsidiary became worthless under §§ 165 and 1.1502-80T(c).

An election under §1.337(d)-2T(c) to recognize some or all of a loss upon the disposition of the stock of Subsidiary was required to be filed with or as part of Parent’s consolidated group’s return for the year of disposition. The Election was due on Date B, but 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.

Section 1.337(d)-2T(a)(1) provides a general rule that no deduction is allowed for any loss recognized by a member of a consolidated group with respect to the disposition of stock of a subsidiary.

Section 1.337(d)-2T(a)(2)(ii) provides that a disposition means any event in which gain or loss is recognized, in whole or in part.

Section 1.337(d)-2T(c)(1) provides that § 1.337(d)-2T(c) applies with respect to stock of a subsidiary only if a separate statement entitled "§ 1.337(d)-2T(c) statement" is included with the return in accordance with § 1.337(d)-2T(c)(3).

Section 1.337(d)-2T(c)(2) provides that loss is not disallowed under § 1.337(d)- 2T(a)(1) to the extent the taxpayer establishes that the loss is not attributable to the recognition of built-in gain on the disposition of an asset (including stock and securities).

Section 1.337(d)-2T(c)(3) provides that the statement required under § 1.337(d)- 2T(c)(1) must be included with or as part of the taxpayer's return for the year of the disposition.

In general, § 1.337(d)-2T applies with respect to dispositions and deconsolidations after March 6, 2002 and before March 3, 2005. If loss is recognized because stock of a subsidiary becomes worthless, the disposition with respect to the stock is treated as occurring on the date the stock becomes worthless. Section 1.337(d)-2T(g).

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
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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., § 1.337(d)-2T(c)(3)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Parent to file the Election, provided Parent 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, Company Officials, and Tax Professional 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, the request for relief was filed before the failure to make the Election was discovered by the Internal Revenue Service, and that 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 Parent 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 60 days from the date on this letter, for Parent to file the Election.

The above extension of time is conditioned on Parent's consolidated 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 Parent's consolidated group's tax liability for the years involved. A determination thereof will be made by the Director's office 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 with respect to whether Parent qualifies substantively to make the Election. Specifically, no opinion is expressed regarding whether or when Subsidiary’s stock became worthless. In addition, we express no opinion as to the tax effects or consequences of filing the Election late under the provisions of any other section of the Code or regulations, or as to the tax treatment of any conditions existing at the time of, or effects 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 Parent, Company Officials, and Tax Professional under penalties of perjury. However, the Director should verify all essential
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facts. Moreover, notwithstanding that the extension is granted under § 301.9100-3 to file the Election, any penalties and interest that would otherwise be applicable still 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.

A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling.

Pursuant to the power of attorney on file in 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)

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