PLR 201016047: Taxpayers receive more time to make a section 382 value-restoration election

Plain-English summary

The IRS granted a loss corporation and a foreign subsidiary 45 days to file a section 1.382-8(h) election to restore value after an ownership change. The taxpayers had missed the deadline because they reasonably relied on a qualified tax professional who failed to make or advise them to make the election. The extension is conditioned on the taxpayers' aggregate tax liability not being lower for the affected years than it would have been if the election had been timely, taking the time value of money into account. The ruling did not determine whether an ownership change occurred, whether the entities were controlled-group members, or how much value could be restored.

Ruling snapshot

• Question: May taxpayers receive extra time to file a section 382 value-restoration election after relying on a tax professional?
• Outcome: Approved
• Key authorities: IRC § 382; Treas. Reg. §§ 1.382-8 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201016047
Third Party Communication: None
Release Date: 4/23/2010
Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.22-00, 382.12-00,
----------------------, ID No. -----------------
382.12-16
Telephone Number:
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Refer Reply To:
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CC:CORP:B03
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PLR-149513-09
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Date:
-------------------------------------------- January 20, 2010
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TY: -------

Legend

Successor-in-Interest = --------------------------------------
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Target = ----------------------------------------------------------
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Foreign Sub = ------------------------------------------------
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Date 1 = -------------------

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

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

a = ------

Company Official = ----------------
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Tax Professional = --------------------
PLR-149513-09
2

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

This letter responds to a letter dated November 4, 2009, submitted by Successor-in- Interest on behalf of Target, requesting an extension of time under §301.9100-3 of the Procedure and Administration Regulations to file an election. Additional information was submitted on December 9 and December 29, 2009, and January 6, 2010. The extension is being requested in order to allow Target and Foreign Sub to file an election to restore value under §1.382-8(h) of the Income Tax Regulations (“Election”). The Election was required to be filed with Target’s federal income tax return for the taxable year ended Date 3. Citations in this letter to regulations under §382 are to regulations in effect for the taxable year ended Date 3. The material information submitted for consideration is summarized below.

Target owned a percent of Foreign Sub. Target filed a separate federal income tax return for the taxable year ended Date 3. Target was a loss corporation. On Date 1, Target and Foreign Sub became component members of a controlled group under
§1.382-8. On Date 2, Target underwent an ownership change. As a result, Target’s value was reduced under §1.382-8(c)(1) by the value of the stock it owned in Foreign Sub.

Section 382(a) of the 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).

The Election was required to be filed with Target’s income tax return for its taxable year ended Date 3. However, for various reasons, Target and Foreign Sub failed to make the Election in a timely manner.
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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 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 Target and Foreign Sub to file the Election, provided Target and Foreign Sub 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 interests of the government.

Information, affidavits, and representations submitted by Successor-in-Interest, Company Official, and Tax Professional explain the circumstances that resulted in the failure to timely file the Election. The information establishes that Target reasonably relied on a qualified tax professional who failed to make, or advise Target to make, the Election. See §301.9100-3(b)(1)(v).

Based on the facts and information submitted, including the affidavits submitted and the representations that have been made, we conclude that Target and Foreign Sub 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 Successor-in-Interest, on behalf of Target, and Foreign Sub to file the Election.

The above extension of time is conditioned on the taxpayers’ (Target’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 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. In addition, 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).
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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 Target and Foreign Sub are component members of a controlled group; or the amount of value, if any, that may be restored. Further, 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 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 Successor-in_interest, Company Official, 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 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.

In accordance with the Power of Attorney on file with 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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