PLR 200850026: a missed election to waive a carryback period, fixed one week after it was asked about

Plain-English summary

A four page private letter ruling from the Office of Associate Chief Counsel (Corporate), control number "PLR-138326-08", dated September 10, 2008 and released 12/12/2008. It grants so called 9100 relief: an extension of time to make an election the taxpayer meant to make and did not.

The election is the one in § 1.1502-21(b)(3)(i), by which a consolidated group gives up the entire carryback period for a consolidated net operating loss instead of carrying it back. A group that wants to keep a loss for future years rather than recover past tax has to say so in a signed statement attached to the return for the year the loss arises, and the regulation prints the exact wording of that statement. Taxpayer, the common parent, intended to relinquish the carryback for the year ended Date 1. The letter says only that "for various reasons, a valid election was not filed", and that the failure was found later.

The relief machinery is routine and the letter recites it plainly. Section 301.9100-1(c) gives the Commissioner discretion to extend the time for a regulatory election; § 301.9100-2 covers automatic extensions; § 301.9100-3 covers everything else, and grants relief where the taxpayer "acted reasonably and in good faith" and relief will not "prejudice the interests of the government." The deadline here comes from a regulation rather than a statute, so § 301.9100-3 is the right door.

What carried the request was reliance on an adviser. The Service found that Taxpayer "reasonably relied on a qualified tax professional who failed to make, or advise Taxpayer to make, the election", and that the request came in before the Service itself found the problem, citing §§ 301.9100-3(b)(1)(i) and (v). Those two paragraphs are cited only in the compound form "301.9100-3(b)(1)(i) and (v)"; both are listed separately above. The letter also records that the assessment period under § 6501(a) was still open, and that no member of the group had a separate return year within the meaning of § 1.1502-1(e) during the carryback period, which is what makes an all or nothing waiver clean.

Relief is granted for 45 days from the date of the letter, on the standard condition that the group's aggregate tax liability across all affected years not come out lower than it would have been had the election been timely, taking the time value of money into account. Penalties and interest that would otherwise apply keep applying.

The striking thing about this one is the clock. The letter answers "a letter dated September 3, 2008" and is dated September 10, 2008. A private letter ruling issued seven days after the request reached the Service is fast by any measure, and it suggests the file arrived complete, with the affidavits from Taxpayer, Company Official and Tax Professional already assembled.

The released copy has a systematic character encoding defect, recorded here and deliberately not repaired, because the document itself proves the substitution is not uniform.

Throughout the text the section symbol has been replaced by a straight apostrophe, so the letter reads "under ' 301.9100-3" and "in accordance with ' 1.1502-21(b)(3)(i)". Where the plural section symbol belongs, two apostrophes appear: "the requirements of '' 301.9100-1 and 301.9100-3 are satisfied". The apostrophe form for that one regulation family appears eleven times, three of them doubled. The typographic apostrophe in a possessive has become an equals sign, giving "Taxpayer=s consolidated group=s tax liability". Curly quotation marks have become letters: an opening quote is rendered "A" and a closing quote "@", which turns the defined term into "(ACNOL@)" and turns the whole block quoted election statement into one running line that opens "ATHIS IS AN ELECTION UNDER SECTION 1.1502-21(b)(3)(i)" and closes "IS THE COMMON PARENT.@".

The reason to flag rather than fix is that correct characters survive in the same document, and in one case in the same sentence. A real section symbol appears once, in "within the meaning of § 1.1502-1(e)". More tellingly, the sentence "Taxpayer=s consolidated group's returns must be amended" carries the broken form and the correct typographic apostrophe side by side, four words apart. A repair pass would have to guess which of the two the source actually printed, so the text is left exactly as released.

One further layout point, recorded because it is visible and harmless. The running page identification changes order partway through: on pages 2 and 3 the page number sits on its own line above the control number, and on page 4 the control number comes first with the page number to its right. The signature sits under a row of underscores where a scanned signature line would be, above "Ken Cohen, Senior Technician Reviewer, Branch 3".

The legend in this letter has no heading. It opens straight onto "Taxpayer =" with nothing above it but the header block, ending at the date line, and defines four terms: Taxpayer, Date 1, Company Official and Tax Professional. The words Legend and LEGEND do not appear anywhere in the document.

Every authority cited is a Code section or a Treasury regulation; no case is cited. The citation check this corpus normally runs could not be performed because the legal research tool is unavailable in this session, so the cites are reproduced exactly as released and none has been supplied or corrected from memory.

Ruling snapshot

• Question: May a consolidated group that intended to relinquish the entire carryback period for its consolidated net operating loss, but never filed the § 1.1502-21(b)(3)(i) election, get an extension of time to file it now?
• Outcome: Granted. The group established that it acted reasonably and in good faith by relying on a qualified tax professional who failed to make or advise the election, and that relief would not prejudice the government, so an extension was granted under § 301.9100-3 running 45 days from the date of the letter, conditioned on aggregate tax liability not coming out lower than it would have under a timely election.
• Key authorities: Treas. Reg. §§ 1.1502-21(b)(3)(i), 1.1502-1(e), 301.9100-1(a) and (c), 301.9100-2, 301.9100-3, 301.9100-3(b)(1)(i) and (v), and 301.9100-3(c); §§ 172(b)(3) and 6501(a).

Full text (IRS public release)

```text
Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 200850026 Third Party Communication: None
Release Date: 12/12/2008 Date of Communication: Not Applicable
Index Number: 9100.22-00, 1502.21-00
Person To Contact:
-------------------- ---------------, ID No. -----------------
------------------------------ Telephone Number:
------------------------------------------- ---------------------
----------------------------- Refer Reply To:
------------- CC:CORP:B03
------------------------------- PLR-138326-08
Date:
September 10, 2008

Taxpayer = ------------------------------------------------

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

Company Official = -------------------------

Tax Professional = ----------------------------

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

  We respond to a letter dated September 3, 2008, requesting, on behalf of

Taxpayer, an extension of time under ' 301.9100-3 of the Procedure and Administration
Regulations to file an election. Taxpayer is requesting an extension to file an election
under ' 1.1502-21(b)(3)(i) of the Income Tax Regulations to relinquish the entire
carryback period for the consolidated net operating loss (ACNOL@) of the consolidated
group of which Taxpayer is the common parent for the tax year ended Date 1. The
material information submitted for consideration is summarized below.

   Taxpayer is the common parent of a consolidated group. Taxpayer intended to

relinquish the carryback period for its consolidated group=s CNOL for its year ended
Date 1. However, for various reasons, a valid election was not filed. Subsequently, it
was discovered that a valid election was not filed. Taxpayer then submitted this request
for an extension of time to file a valid election. The period of limitations on assessment
 2
PLR-138326-08

under ' 6501(a) has not expired for the tax year for which the election should have
been filed or for any subsequent tax year(s).

   Taxpayer has represented that the consolidated group of which Taxpayer was

the common parent for the tax year ended Date 1 has not, and will not, carry any portion
of the CNOL back to a prior consolidated return year of the group. Taxpayer further has
represented that no member of the consolidated group of which Taxpayer was the
common parent for the tax year ended Date 1 had a separate return year, within the
meaning of § 1.1502-1(e), at any time during the carryback period.

    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 ATHIS 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 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
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.,

' 1.1502-21(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.
 3
PLR-138326-08

    Information, affidavits, and representations submitted by Taxpayer, Company

Official, and Tax Professional 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 request for relief was filed before the failure to make the election
was discovered by the Internal Revenue Service. See '' 301.9100-3(b)(1)(i) and (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 ended Date
1, as described above.

    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 Taxpayer=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 Taxpayer=s
consolidated group=s liability is lower. Section 301.9100-3(c).

    Taxpayer should file the election in accordance with ' 1.1502-21(b)(3)(i).

Taxpayer=s consolidated group’s returns must be amended to attach the election
statement required by ' 1.1502-21(b)(3)(i). A copy of this letter should be attached to
the election statement. Alternatively, if Taxpayer files its returns electronically, it may
satisfy this latter requirement by attaching a statement to its return that provides the
date and control number of this letter ruling.

    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 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.
PLR-138326-08 4

   This ruling is directed only to the taxpayer(s) 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, copies of this letter are
being sent to your authorized representatives.

                                   Sincerely,


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

```