PLR 200816024: Controlled group received more time for loss-limitation value election

Plain-English summary

A consolidated group's parent and foreign subsidiaries missed the deadline to elect restoration of value under the controlled-group rules for calculating the § 382 limit on pre-change losses. The IRS found that they met the requirements for late-election relief and granted 45 days from the ruling date to file the election. Relief was conditioned on the group's aggregate tax liability, accounting for the time value of money, being no lower than if the election had been timely. The IRS did not determine whether an ownership change occurred, how much value could be restored, or the amount of any losses.

Ruling snapshot

• Question: Could the controlled group file its value-restoration election after the regulatory deadline?
• Outcome: Approved: a 45-day extension with a tax-liability condition.
• Key authorities: IRC § 382; Treas. Reg. §§ 1.382-8(h), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200816024
Third Party Communication: None
Release Date: 4/18/2008
Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 382.00-00,
382.12-16
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:CORP:B04
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PLR-148508-07
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Date:
January 07, 2008

Legend

Parent = ---------------------
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Foreign Subs = ------------------------------------
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Date 1 = ----------------

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

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

This letter responds to a letter dated October 25, 2007, submitted on behalf of Parent and a number of its foreign subsidiaries (the “Foreign Subs”), requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election. Additional information was submitted in letters dated November 30, 2007 and December 6, 2007. The extension is being requested in order to allow Parent and Foreign Subs to file an election to restore value under § 1.382-8(h) of the Income Tax Regulations (the “Election”). The Election was required to be filed with Parent’s consolidated federal income tax return for the taxable year ended Date 2. Citations in this letter to regulations under § 382 are to regulations in effect for the taxable year ended Date 2. The material information submitted for consideration is summarized below.

Parent is the common parent of a consolidated group. Parent and Foreign Subs are component members of a controlled group under § 1.382-8. Parent underwent an ownership change on Date 1. As a result, Parent's value was reduced under § 1.382- 8(c)(1) by the value of the stock of Foreign Subs.

Section 382(a) of the Internal Revenue Code provides that the amount of the taxable income of any new loss corporation for any post-change year which may be offset by pre-change losses shall not exceed the § 382 limitation for such year. Under § 382(b)(1), the § 382 limitation is determined by multiplying the value of the old loss corporation by the applicable long term tax-exempt rate. A special rule designed to prevent “double counting” by controlled groups is set forth in § 1.382-8. Section 1.382- 8(c)(1) requires the value of the stock of each component member of the controlled group be reduced by the value of the stock owned by that component member in any other component member. For purposes of applying § 1.382-8, a consolidated group, loss group, or loss subgroup, is treated as a single corporation under § 1.382-8(f). Component members of a controlled group can elect under § 1.382-8(c)(2) to restore some or all of the value to the member whose value is reduced under § 1.382-8(c)(1). The election to restore value is made following the procedures set forth in § 1.382-8(h).

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The Election was required to be filed with Parent's income tax return for its tax year ended Date 2. However, for various reasons, Parent and Foreign Subs failed to make the Election in a timely manner.

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 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., § 1.382-8(h)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Parent and Foreign Subs to file the Election, provided Parent and Foreign Subs show they 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 government.

Information, affidavits, and representations submitted by Parent, Company Officials, and Tax Professional explain the circumstances that resulted in the failure to timely file the Election. The information establishes that Parent and Foreign Subs filed the request for relief 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).

Based on the facts and information submitted, including the affidavits submitted and the representations that have been made, we conclude that Parent and Foreign Subs have shown they 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 45 days from the date on this letter, for Parent and Foreign Subs to file the Election. The election is to be filed with the Director who has jurisdiction over Parent's returns. A copy of this letter should be attached to the Election.

The above extension of time is conditioned on the taxpayers’ (Parent’s and the members of its controlled group) 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

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expressed as to the taxpayers' 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' liability is lower. Section 301.9100-3(c).

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion with respect to whether an ownership change occurred; whether Parent and Foreign Subs are component members of a controlled group; the amount of value, if any, that may be restored; or as to values or amounts of NOLs. In addition, we express no opinion as to the tax effects or consequences of filing the return or 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 return or 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 facts. Moreover, notwithstanding that an extension is granted under § 301.9100-3 to file the Election, any penalties and interest that would otherwise be applicable still apply.

This letter 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 a power of attorney on file with 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)