PLR 1021017: IRS granted more time to make an election relinquishing a consolidated NOL carryback

Plain-English summary

The IRS granted a corporate taxpayer an extension of time to file an election relinquishing the entire carryback period for a consolidated net operating loss. The taxpayer intended to make the election on a short-period consolidated return but did not file a valid election for various reasons. The IRS found that the taxpayer acted reasonably and in good faith, and that granting relief would not prejudice the government. The extension was conditioned on the relevant consolidated tax liabilities not being lower in the aggregate than they would have been if the election had been timely made. The taxpayer was given 45 days from the date of the letter to file the election and amend its return.

Ruling snapshot

• Question: Could the taxpayer receive more time to file an election relinquishing the entire carryback period for a consolidated net operating loss?
• Outcome: Approved
• Key authorities: IRC §§ 172, 301.9100-3, 1.1502-21(b)(3)(i), and 6110(k)(3); IRC § 6501(a)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201021017 Third Party Communication: None
Release Date: 5/28/2010 Date of Communication: Not Applicable
Index Number: 9100.00-00; 1502.21-00
Person To Contact:
-------------------------------------------- -----------------------, ID No. -------------
-------------------------------------------------- Telephone Number:
--------------------------------------- ---------------------
---------------------------------------- Refer Reply To:
CC:CORP:BR2
PLR-145767-09
Date:
February 12, 2010

Legend

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

Old Common Parent = --------------------------------

Sub 1 = -----------------------------------------------

Sub 2 = ----------------------------------------------------

Sub 3 = ---------------------------------------

Sub 4 = -----------------------------------------------------

Sub 5 = -----------------------------------------------

Sub 6 = ---------------------------------

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

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

Date 3 = --------------------------
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Company Officials = ----------------------------
-------------------------------

                                          --------------------------------

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

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

This letter responds to your request for a ruling, submitted by your authorized
representative, dated October 8, 2009, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to file an election. The
extension is being requested for Taxpayer to file an election under § 1.1502-21(b)(3)(i)
of the Income Tax Regulations (the “Election”) to relinquish the entire carryback period
with respect to a consolidated net operating loss (“CNOL”) of the consolidated group
of which Taxpayer was the common parent for the short taxable year ending Date 3.
Additional information was received in subsequent correspondence dated December
23, 2009 and February 3, 2010. The material information is summarized below.

                                          Summary of Facts

Prior to Date 1, Old Common Parent wholly owned, directly or indirectly, Taxpayer and
its subsidiaries. Taxpayer and its subsidiaries joined Old Common Parent in the filing of
a U.S. consolidated income tax return. On Date 1, sufficient stock in Taxpayer was sold
to third parties, causing Taxpayer to disaffiliate from the Old Common Parent affiliated
group. As a result of the stock sale, Taxpayer and its subsidiaries became a separate
U.S. affiliated group with Taxpayer as the common parent.

Taxpayer filed a separate short period consolidated return for the period between Date
2 and Date 3. Taxpayer intended to relinquish the carryback period for its consolidated
group’s CNOL on its tax return for the taxable year ending Date 3. For various reasons,
a valid Election was not filed. Subsequent to Taxpayer filing the return, it was
discovered that the Election had not been filed. Thereafter, Taxpayer submitted this
request, under § 301.9100-3, for an extension of time to file the Election. The period of
limitations on assessment under § 6501(a) has not expired for the taxable year for
which the election should have been filed or any subsequent taxable year.

Taxpayer represents that the consolidated group of which it was the common parent for
the tax year ended Date 3 has not, and will not, carry any portion of the CNOL back to a
prior consolidated return year of the Taxpayer consolidated group. Taxpayer also
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represents that neither Taxpayer nor any member of its consolidated group had a
separate return year at any time during the carryback period other than a separate
return year in which it was a member of Old Common Parent’s consolidated group. Old
Common Parent represents that none of the CNOL for taxable year ended Date 3
attributable to Taxpayer’s consolidated group has been carried back, or will be carried
back, to a separate return year, within the meaning of § 1.1502-1(e), of such
corporations in which they were members of Old Common Parent’s consolidated group.

Section 1.1502-21(b)(3)(i) allows a group to make an irrevocable election under
§ 172(b)(3) to relinquish the entire carryback period with respect to a CNOL for any
consolidated return year.

Section 172(b)(3) allows any taxpayer entitled to a carryback period under § 172(b)(1)
to elect to relinquish the entire carryback period with respect to a net operating loss for
any taxable year.

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 that 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., § 1.1502-
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 that Taxpayer
shows that 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.

Information, affidavits, and representations submitted by Taxpayer and Company
Officials explain the circumstances that resulted in the failure to timely file a valid
Election. The information establishes that the request for relief was filed before the
Internal Revenue Service discovered the failure to make the Election. See § 301.9100-
3(b)(1)(i).

Based on the facts and information submitted, including representations made, we
conclude that Taxpayer has shown it acted reasonably and in good faith, the
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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 forty-five days from the date on this letter, for Taxpayer to file
the Election.

The above extension of time is conditioned on the Taxpayer’s consolidated group’s tax
liability and the tax liability of any consolidated group of which a member of Taxpayer’s
consolidated group becomes a member (if any) being not lower, in the aggregate, for all
years to which the Election applies, and all subsequent years, 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 amount of 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 amount of tax liability is lower. See
§ 301.9100-3(c).

Taxpayer should file the election in accordance with § 1.1502-21(b)(3)(i). Taxpayer’s
return 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 amended return electronically, Taxpayer may satisfy
this latter requirement by attaching to the return a statement that provides the date and
control number (PLR-145767-09) of this ruling letter.

                                      Caveats

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for rulings, it is subject to verification on examination.

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 addition, we express no opinion as to the tax effects or any other tax 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 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 Taxpayer, Tax Professional, Old Common
Parent, and Company Officials. The appropriate Service office, however, should verify
all essential facts. 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.
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                              Procedural Statements

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.

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)