PLR 201002002: Consolidated-return relief is partly denied after an S-election revocation

Number

201002002

Outcome

Mixed outcome

Document type

Private Letter Ruling

IRS subject

Termination of Election; Separate Return Years; Consolidated Returns for Subsequent Years

Topics

S corporations Corporate transactions and reorganizations

Code sections

§ 1361, § 1362, § 1502, § 1504, § 6110

Ruling dated

October 1, 2009

Publicly released

January 15, 2010

Source

View Official PDF

Apply this to your situation

This page covers one taxpayer's ruling, issued in 2010, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

View official IRS release (PDF)

Plain-English summary

The IRS considered the tax consequences after a parent corporation revoked its S corporation election, causing qualified subchapter S subsidiary elections to terminate and creating a new affiliated group. It denied the requested waiver that would have allowed the parent and new group to file a consolidated return for the short period immediately after the revocation. It did allow the new group to begin filing consolidated returns for the tax year beginning on the later stated date, if the parent and other members properly elected to do so, and it ruled that specified asset losses would not be subject to Treas. Reg. § 1.1502-15 within the new group. The ruling therefore provided partial relief and did not address other tax consequences.

Ruling snapshot

Question: Could the new affiliated group file a consolidated return for the short period after the S-election revocation and for later years?
Outcome: Mixed
Key authorities: IRC §§ 1361, 1362, and 1504; Treas. Reg. § 1.1502-15

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201002002
Third Party Communication: None
Release Date: 1/15/2010
Date of Communication: Not Applicable
Index Number: 1362.02-00, 1502.79-00,
1502.89-00
Person To Contact:
----------------------, ID No. --------------
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Telephone Number:
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------------------------------------------------------- Refer Reply To:
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CC:CORP:04
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PLR-117511-09
Date:
October 01, 2009

Legend

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

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

Date 3 = -------------------------

Date 4 = --------------------------

Date 5 = --------------------------

Date 6 = ----------------------

Former QSubs = ----------------------------------------------
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PLR-117511-09
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PLR-117511-09
3

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Regional Subsidiary 1 = ---------------------------------------------------
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Regional Subsidiary 2 = ----------------------------------------------------
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Regional Subsidiary 3 = ------------------------------------------------------------
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Regional Subsidiary 4 = -----------------------------------------------------------------------
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Dear -----------:

This letter responds to your March 27, 2009 request for a ruling on certain federal income tax consequences of the transactions described below. The information submitted in that request and in later correspondence is summarized below.

Summary of Facts

Prior to Date 1, Parent was the common parent of an affiliated group of corporations that filed a consolidated federal income tax return on a calendar year basis (the “Old Group”). Effective Date 1, Parent elected to be taxed as an S corporation under § 1361 of the Internal Revenue Code (the “Code”) for federal income tax purposes and made qualified subchapter S subsidiary (“QSub”) elections for most, but not all, of its subsidiaries. As a result of Parent’s S corporation election, the Old Group terminated for federal income tax purposes effective at the end of the day on Date 2.

Effective Date 3, Parent revoked its S corporation election by filing a letter with the Internal Revenue Service in accordance with the procedures set forth in § 1362(d)(1) and the applicable federal income tax regulations. Parent’s revocation of its S corporation election caused each QSub election to terminate as of the end of the day on Date 4. As a result of the termination of the QSub elections, Parent was treated
PLR-117511-09
4

for federal income tax purposes as transferring the assets of its QSubs to newly formed corporations as set forth in § 1361(b)(3)(C) and the federal income tax regulations (the “regulations”) thereunder. Those newly formed corporations are referred to in this ruling letter as the Former QSubs. Immediately before such deemed asset transfer, the aggregate tax basis of Parent’s assets (including the assets legally owned in the QSubs) exceeded their aggregate fair market value.

As a result of Parent’s revocation of its S corporation election, Parent, each of the Former QSubs, Regional Subsidiary 1, Regional Subsidiary 2, Regional Subsidiary 3, and Regional Subsidiary 4 became members of an affiliated group with Parent as its common parent (collectively, the “New Group”).

Parent requested a ruling for a waiver under § 1504(a)(3)(B) permitting Parent and each other member of the New Group to be included in the New Group’s consolidated federal income tax return for the short tax period Date 3 through Date 5.

Rulings

Based solely on the information submitted and the representations set forth above, we rule as follows:

Parent is denied a waiver under § 1504(a)(3)(B) for it to be included in a
consolidated federal income tax return for New Group for the short tax period
Date 3 through Date 5. Accordingly, the New Group may not file a consolidated
return with Parent as the common parent until the expiration of the period
described in § 1504(a)(3)(A).
Provided Parent and each other member of the New Group properly elect to file a
consolidated return, the New Group may begin filing a consolidated federal
income tax return for the tax year beginning Date 6.
Any loss recognized with respect to an asset owned by Parent or any of the
Former QSubs on Date 3 will not be treated as subject to § 1.1502-15 within the
New Group (see § 1.1502-15(f)(1)).
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                                Caveats
```
We express no opinion about the tax treatment of any of the above-described
transactions under any other provisions of the Code or regulations or about the tax treatment of any conditions existing at the time of, or effects resulting from, these transactions that are not specifically covered by the above rulings.
PLR-117511-09 5
```
                            Procedural Matters
```
This ruling letter is directed only to the taxpayer who requested it. Section
6110(k)(3) provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any federal 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 this letter ruling.

In accordance with the power of attorney on file in this office, a copy of this letter
is being sent to your authorized representative.
```
                               Sincerely,

                               ____________________________________
                               Lewis K Brickates
                               Chief, Branch 4
                               Office of Associate Chief Counsel (Corporate)
```

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