PLR 1030003: Extension granted for a section 382 closing-of-the-books election

Plain-English summary

The IRS granted a consolidated group an extension of time to make a regulatory closing-of-the-books election under section 1.382-6(b). The election concerns how the group allocates income, losses, and other items between the periods before and after an ownership change. The IRS granted 90 days from the date of the letter for the taxpayer to file the election and required affected returns to be filed or amended with specified attachments. The relief was conditioned on safeguards concerning the group's aggregate tax liability, closing its books on the ownership-change date, and limiting the amount allocated to the pre-change period. The ruling did not decide whether the group was a loss group, whether an ownership change occurred, or any other tax consequences of the election.

Ruling snapshot

• Question: Could the consolidated group receive more time to make its section 1.382-6(b) closing-of-the-books election?
• Outcome: Approved
• Key authorities: IRC §§ 301, 382, 6501, 1502, and 6110

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201030003 Third Party Communication: None
Release Date: 7/30/2010 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.22-00, 382.02-05 ----------------------, ID No. -----------------
Telephone Number:
--------------------
--------------------------------------------- Refer Reply To:
------------------------------- CC:CORP:B02
------------------------------- PLR-105015-10
--------------------------- Date:
April 26, 2010

Legend

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

Taxpayer Official = -------------------------------------

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

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

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

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

This responds to a letter dated December 29, 2009, submitted on behalf of Taxpayer,
requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the
Procedure and Administration Regulations to file an election. Taxpayer, as the common
parent of an affiliated group of corporations that files a consolidated Federal income tax
return, is requesting an extension of time to file a “closing-of-the-books election”
pursuant to § 1.382-6(b) of the Income Tax Regulations (the “Election”), with respect to
a transaction (the change date transaction) that occurred on Date 1. Additional
information was received in a facsimile dated March 18, 2010. The material information
is summarized below.

On Date 1, Taxpayer underwent an ownership change. A closing-of-the-books election
under § 1.382-6(b) was required to be filed on or before the due date, Date 3, of
Taxpayer’s consolidated group's income tax return for the year in which the ownership
PLR-105015-10 2

change occurred but, for various reasons, an election was not timely filed. Taxpayer
filed the group’s consolidated return electronically on Date 2. Subsequently, this request
was submitted, 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 Taxpayer’s
consolidated group's taxable year in which the ownership change occurred or for any
taxable years that would have been affected by the Election had it been timely filed.

The following representations have been made in connection with this request:

(1) Taxpayer’s failure to make the Election under § 1.382-6(b) on its timely filed tax
return has not been discovered by the IRS.

(2) Taxpayer’s consolidated group is a “loss group” within the meaning of § 1.1502-
91(c)(1) with respect to certain net operating loss carryovers.

(3) As a result of the change date transaction on Date 1, Taxpayer underwent an
ownership change as defined in § 382(g)(1).

(4) All necessary amended returns will be filed to reflect the Election if relief is granted
by this ruling request.

(5) Taxpayer’s consolidated group will determine its alternative minimum taxable
income and adjusted current earnings for the pre-change and post-change periods
based on a closing-of-the-books election as of the ownership change date on Date 1
and will elect out of ratable allocation.

Section 1.382-6(a) provides that, except as provided in paragraphs (b) and (d) of the
section, a loss corporation must allocate its net operating loss or taxable income and its
net capital loss or modified capital gain net income for the change year between the
pre-change period and the post-change period by ratably allocating an equal portion to
each day in the year.

Section 1.382-6(b)(1) provides that a loss corporation may elect to allocate its net
operating loss or taxable income and its net capital loss or modified capital gain net
income for the change year between the pre-change period and the post-change period
as if the loss corporation's books were closed on the change date.

Section 1.382-6(b)(2) provides that a loss corporation makes the closing-of-the-books
election by including the following statement on the information statement required by
§ 1.382-11(a) for the change year: “THE CLOSING-OF-THE-BOOKS ELECTION
UNDER § 1.382-6(b) IS HEREBY MADE WITH RESPECT TO THE OWNERSHIP
CHANGE OCCURRING ON [INSERT DATE].” The election must be made on or before
the due date (including extensions) of the loss corporation's income tax return for the
change year.
PLR-105015-10 3

Section 1.1502-91(c)(1) defines a loss group as a consolidated group that: (i) is entitled
to use a net operating loss carryover to the taxable year that did not arise (and is not
treated under § 1.1502-21(c) as arising) in a separate return limitation year; (ii) has a
consolidated net operating loss for the taxable year in which a testing date of the
common parent occurs (determined by treating the common parent as a loss
corporation; or (iii) has a net unrealized built-in loss.

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. 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-
6(b)(2)). Therefore, the Commissioner has discretionary authority under § 301.9100-1 to
grant an extension of time for Taxpayer to file the Election, provided Taxpayer shows 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 Taxpayer
Official 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
failure to make the Election was discovered by the Internal Revenue Service. See
§ 301.9100-3(b)(1)(i). The information also establishes that Taxpayer reasonably relied
on a qualified tax professional who failed to make, or advise Taxpayer to make, the
election. See § 301.9100-3(b)(1)(v).

Based on the facts and information submitted, including the representations made, we
conclude that Taxpayer 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 § 301.9100-1, UNTIL 90 DAYS FROM THE DATE ON THIS LETTER, for
Taxpayer to file the Election.

WITHIN 90 DAYS OF THE DATE ON THIS LETTER, Taxpayer must file or amend, as
applicable, Taxpayer’s consolidated group’s income tax returns for all open taxable
PLR-105015-10 4

years affected by the Election and attach to the returns a copy of the Election, a copy of
the information statement (if one has not already been attached), and a copy of this
letter. Alternatively, taxpayers filing their returns electronically may satisfy the
requirement of attaching a copy of this letter by attaching a statement to their return that
provides the date and control number of the letter ruling.

The above extension of time is conditioned on: (1) Taxpayer’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); (2) all members of Taxpayer’s consolidated group
closing their books as of the ownership change date pursuant to § 1.382-6(b)(3)(i); and
(3) income or loss being allocated to the pre-change period not exceeding the taxable
income or loss for the taxable year that includes the change date.

No opinion is expressed as to Taxpayer's consolidated group’s tax liability for the years
involved. A determination thereof will be made by the applicable 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 Taxpayer’s consolidated
group’s tax liability is lower. Section 301.9100-3(c).

We express no opinion as to: (1) whether Taxpayer’s consolidated group is a “loss
group,” as defined in § 1.1502-91(c)(1); (2) whether an ownership change, as defined in
§ 382(g) and § 1.1502-92(b)(1)(i), occurred on Date 1; or (3) any other tax
consequences arising from the Election. 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 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 § 301.9100-1, we relied on certain statements and representations made by the
taxpayers. However, the Director should verify all essential facts. In addition,
notwithstanding that an extension is granted under § 301.9100-1 to file the Election,
penalties and interest that would otherwise be applicable, if any, continue to apply.

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.

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.
PLR-105015-10 5

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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