PLR 1113016: IRS grants extra time to file an election for a consolidated group's subsidiary stock loss

Plain-English summary

The IRS granted a consolidated corporate group 60 additional days to file a statement election related to a claimed loss on stock of a wholly owned subsidiary that had become worthless. The group had not filed the required statement with its return because it relied on a qualified tax professional who failed to make or recommend the election. The IRS found that the group acted reasonably and in good faith, and that granting relief would not prejudice the government. The extension was conditional on the group substantively qualifying to make the election and on its aggregate tax liability not being lower than it would have been if the election had been timely filed.

Ruling snapshot

• Question: May the consolidated group receive an extension of time to file the required section 1.337(d)-2T(c) statement?
• Outcome: Approved.
• Key authorities: IRC §§ 165(g), 337(d), 1502, and 6110; Treas. Reg. §§ 1.337(d)-2T, 1.1502-80, and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201113016 Third Party Communication: None
Release Date: 4/1/2011 Date of Communication: Not Applicable
Index Number: 337.16-00, 9100.29-00
Person To Contact:
------------------------------------------- ----------------------, ID No. -------------
---------------------------------------------- Telephone Number:
---------------------------------------------------- --------------------
-------------------------------- Refer Reply To:
CC:CORP:B05
---- PLR-138278-10
---- Date:
December 13, 2010
---------------------------------------------------.

Legend

Parent = ---------------------------------------------------------------------------------

Subsidiary = ---------------------------------------------------------------------------------

Parent Official A = ---------------------------------------------------------------------------------

Parent Official B = ---------------------------------------------------------------------------------

Date A = --------------------------

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

    This letter responds to a letter dated September 13, 2010, requesting an

extension of time under §§ 301.9100-1, et seq., of the Procedure and Administration
Regulations to file an election. In particular, Parent is requesting an extension of time to
file a statement under § 1.337(d)-2T(c) of the Income Tax Regulations (the “Election”).
All citations in this letter to §§ 1.337(d)-2T and 1.1502-80 are to the version of the
regulations in effect for Parent’s taxable year ended Date A. The material information
submitted for consideration is summarized below.

   Prior to and during the taxable year ended Date A, Parent was the common

parent of an affiliated group of corporations that joined in filing a consolidated return for
U.S. federal income tax purposes (the “Parent Consolidated Group”). Subsidiary was a

PLR-138278-10 2

direct, wholly-owned subsidiary of Parent and a member of the Parent Consolidated
Group.

  Parent claims that during the taxable year ended Date A, its investment in

Subsidiary became worthless under § 165(g) of the Internal Revenue Code and
§ 1.1502-80(c).

   In order for Parent to claim a loss on its stock in Subsidiary under § 165(g) of the

Internal Revenue Code, an election under § 1.337(d)-2T(c) was required to be filed with
or as part of the Parent Consolidated Group's return for the taxable year ended Date A.
However, for various reasons, the Election was not filed. After the due date for the
Election, it was discovered that the Election had not been filed. Subsequently, this
request was submitted.

   Section 1.337(d)-2T(a)(1) provides a general rule 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)(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)(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)(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 on or after March 7,

2002 and before March 3, 2005. If loss is recognized because stock of a subsidiary
became worthless, the disposition with respect to the stock is treated as occurring on
the date the stock became worthless.

   Section 1.1502-80(c) provides that stock of a member is not treated as worthless

under § 165 before the stock is treated as disposed of under the principles of § 1.1502-
19(c)(1)(iii).

  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

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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. Section 301.9100-3 provides
extensions of time for making regulatory elections that do not meet the requirements of
§ 301.9100-2. Requests for relief under § 301.9100-3 will be granted when the
taxpayer provides evidence to establish to the satisfaction of the Commissioner 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 establishes
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, Parent Official

A, and Parent Official B 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 affidavits submitted

and the representations made, we conclude that Parent has established that it acted
reasonably and in good faith in failing to timely file the Election, 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, provided the Parent Consolidated Group
qualifies substantively to file the Election, we grant an extension of time under
§ 301.9100-3, until sixty (60) days from the date on this letter, for Parent to file the
Election.

    The above extension of time is conditioned on the Parent Consolidated Group's

tax liability, if any, not being 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). We express no opinion as to the Parent
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, we express no opinion as to the Federal income tax effect, if any, if it is
determined that the Parent Consolidated Group's tax liability is lower. Section 301.9100-
3(c).

PLR-138278-10 4

   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
Parent qualifies substantively to make the Election, or whether or when Parent’s
investment in Subsidiary 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 Internal Revenue Code or 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.

   The ruling contained in this letter is 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 the ruling, it is subject to verification on examination. In
addition, notwithstanding that an extension is granted under § 301.9100-3 to file the
Election, any penalties and interest that would otherwise be applicable continue to
apply.

  This ruling letter is directed only to the taxpayer requesting 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 income tax return to which it is

relevant. Alternatively, a taxpayer filing its 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_________________
                                    Ken Cohen
                                    Senior Technician Reviewer, Branch 3
                                    Office of Associate Chief Counsel
                                    (Corporate)

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