PLR 1045015: Extension of time to file an election for a loss on subsidiary stock

Plain-English summary

The IRS granted a consolidated group an extension of time to file an election concerning a loss on the stock of a subsidiary. The group had not filed the required statement with its return after the subsidiary's stock became worthless. The IRS found that the group acted reasonably and in good faith, and that relief would not prejudice the government. The extension lasts 45 days from the date of the letter and is conditioned on the group's aggregate tax liability not being lower than it would have been if the election had been timely made.

Ruling snapshot

• Question: May the consolidated group file the required section 1.337(d)-2T(c) statement after the regulatory deadline?
• Outcome: Approved
• Key authorities: IRC §§ 165, 337, and 1502; Treas. Reg. §§ 301.9100-1 through 301.9100-3 and 1.337(d)-2T

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201045015 Third Party Communication: None
Release Date: 11/12/2010 Date of Communication: Not Applicable
Index Number: 337.16-02, 9100.29-00
Person To Contact:
------------------------ ---------------------, ID No. -------------
-------------------------- Telephone Number:
---------------- ---------------------
-------------------------------- Refer Reply To:
------------- CC:CORP:B04
------------------------------------ PLR-115944-10
Date:
August 06, 2010

LEGEND

Parent = ----------------------------------------------------------------------------------
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Sub1 = ----------------------------------------------------------------------------------
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Sub2 = ----------------------------------------------------------------------------------
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Date A = ----------------------------

Company Official = ------------------------------------------------------------

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

Dear -------------------

This letter responds to a letter dated April 12, 2010, submitted by Parent, requesting an
extension of time under § 301.9100-3 of the Procedure and Administration Regulations
to file an election. Parent is requesting an extension of time to file a statement under
§ 1.337(d)-2T(c) of the Income Tax Regulations (the “Election”) that was required to be
filed with its consolidated Federal income tax return for the taxable year ended Date A.

PLR-115944-10 2

Citations in this letter to regulations §§1.337(d)-2T(c) and 1.1502-80 are to regulations
in effect for Parent’s taxable year ending Date A. The information submitted is
summarized below.

Parent is the common parent of an affiliated group of corporations filing a consolidated
Federal income tax return. Sub1 and Sub2 were members of the group. For the taxable
year ended on Date A, Sub1’s investment in Sub2 became worthless under §§ 165 and
1.1502-80(c).

An election under § 1.337(d)-2T(c) to recognize some or all of a loss upon the
disposition of the stock of a subsidiary was required to be filed with or as part of
Parent's consolidated group's return for the year of the disposition, but for various
reasons, a valid Election was not filed.

Section 1.337(d)-2T(a)(1) provides 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)-2T(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)-2T(c)(1) provides that § 1.337(d)-2T(c) applies with respect to stock of
a subsidiary only if a separate statement entitled “§ 1.337(d)-2T(c) statement” is
included with the return in accordance with § 1.337(d)-2T(c)(3).

Section 1.337(d)-2T(c)(2) provides that loss is not disallowed under § 1.337(d)-2T(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)-2T(c)(3) provides that the statement required under § 1.337(d)-
2T(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)-2T applies with respect to dispositions and deconsolidations on or
after March 7, 2002, and before March 3, 2005.

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

PLR-115944-10 3

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).

The time for filing the Election is fixed by the regulations (i.e., § 1.337(d)-2T(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 shows that it acted
reasonably and in good faith, that the requirements of §§ 301.9100-1 and 301.9100-3
are satisfied, and that 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 the
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 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) and (v).

Based on the facts and information submitted, including the representations made, we
conclude that Parent has shown that it acted reasonably and in good faith, that the
requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and that 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 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, in fact, Parent qualifies substantively to
make the Election. Specifically, no opinion is expressed regarding whether or when
Sub2’s stock became worthless. 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 Parent, Company Official, and Tax
Professional. However, the Director should verify all essential facts. Moreover,

PLR-115944-10 4

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 a power of attorney on file with 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)