PLR 200917001: Consolidated group received more time to file a subsidiary-loss statement

Plain-English summary

A consolidated group sold all stock of a subsidiary at a capital loss and reported the loss but failed to include the statement required by Treasury Regulation section 1.337(d)-2(c). The parent reasonably relied on a qualified tax professional who did not make or advise it to make the election, and the parent sought relief before the IRS discovered the omission. The IRS granted 60 days to file the statement because the parent acted reasonably and in good faith and relief would not prejudice the government. The extension was conditioned on aggregate tax liability not being lower than it would have been with a timely election, and the IRS did not decide the allowable loss amount.

Ruling snapshot

• Question: Could the consolidated parent file the section 1.337(d)-2(c) allowable-loss statement after its deadline?
• Outcome: Approved conditionally: the parent received 60 days to file, subject to the aggregate-tax-liability condition.
• Key authorities: Treas. Reg. §§ 1.337(d)-2, 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200917001
Third Party Communication: None
Release Date: 4/24/2009
Date of Communication: Not Applicable
Index Number: 9100.29-00
Person To Contact:
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Refer Reply To:
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CC:CORP:B03
PLR-100687-09
Date:
January 13, 2009

Parent = ------------------------------------------------
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Seller = ---------------------------

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

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

Company Official = ---------------
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Tax Professional = ----------------------
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Dear ---------------:

This is in response to a letter dated December 23, 2008, submitted on behalf of Parent by its authorized representative, 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 allowable loss under § 1.337(d)- 2(c)(3) (sometimes hereinafter referred to as the “Election”). The material information is summarized below.
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Parent is the common parent of a consolidated group, which, through Date A, included Seller and its wholly owned subsidiary, Subsidiary. On Date A, a date within Parent’s consolidated group’s tax year which ended on Date B, Seller sold all of the stock of Subsidiary in a taxable stock sale, recognizing a capital loss. No section 338(h)(10) election was made with respect to the sale. Parent reported such capital loss on its consolidated Federal income tax return.

An election under § 1.337(d)-2(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 tax return for the year of disposition. However, 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)-2(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)-2(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)-2(c)(1) provides that § 1.337(d)-2(c) applies with respect to stock of a subsidiary only if a separate statement entitled "§ 1.337(d)-2(c) statement" is included with the return in accordance with § 1.337(d)-2(c)(3).

Section 1.337(d)-2(c)(2) provides that loss is not disallowed under § 1.337(d)- 2(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)-2(c)(3) provides that the statement required under § 1.337(d)- 2(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)-2 applies with respect to dispositions and deconsolidations on or after March 3, 2005, and before September 17, 2008.

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
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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., § 1.337(d)-2(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 Official, 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, and 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 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 the amount, if any, of allowable loss with respect to the sale of Subsidiary’s stock. 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
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Parent, Company Official, and Tax Professional under penalties of perjury. However, the Director should verify all essential 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 representatives.

Sincerely,

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

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