PLR 1123018: IRS grants more time to file a loss election for stock sold to an unrelated buyer

Plain-English summary

A consolidated corporate group asked for more time to file a regulatory election concerning a loss from selling subsidiary stock to an unrelated buyer. The election statement was required under the consolidated-return rules, but it was not timely filed. The IRS found that the taxpayer acted reasonably and in good faith, and that granting relief would not prejudice the government. It granted a 60-day extension for the election concerning the subsidiary stock, subject to a condition about the group's aggregate tax liability, while expressing no opinion on whether the taxpayer substantively qualified to make the election.

Ruling snapshot

• Question: May the taxpayer file the section 1.337(d)-2(c) election statement after the regulatory deadline?
• Outcome: Approved, with a 60-day extension and stated conditions.
• Key authorities: IRC §§ 337, 6501, 6110; Treas. Reg. §§ 1.337(d)-2, 301.9100-1, 301.9100-2, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201123018 Third Party Communication: None
Release Date: 6/10/2011 Date of Communication: Not Applicable
Index Number: 337.13-00, 337.16-00,
9100.29-00 Person To Contact:
-------------------------, ID No. -----------------
------------------------ -----------------------------------------------------
------ Telephone Number:
--------------------------------- ---------------------
-------------------------------------- Refer Reply To:
----------------------------------------- CC:CORP:B05
-- PLR-145740-10
Re: ----------------------------- Date:
------------------------ March 08, 2011
-----------

LEGEND

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

Sub2 = ------------------------------------------------------------------------------------------
----------------------

Date1 = --------------------

Date2 = --------------------------

Unrelated = ---------------------------------------
Buyer

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

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

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

This letter responds to a letter dated October 27, 2010, requesting on behalf of
Taxpayer an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure
and Administration Regulations to file a statement under § 1.337(d)-2(c) of the Income
Tax Regulations (hereinafter referred to as the “Election”) that was required to be filed
PLR-145740-10 2

with Taxpayer’s consolidated Federal income tax return for the taxable year ending
Date2. Additional information was received in subsequent correspondence dated
March 07, 2010. The material information is summarized below.

Taxpayer is the common parent of a consolidated group that included (among other
subsidiaries) Sub2. On Date1, Taxpayer sold stock of Sub2 to Unrelated Buyer,
recognizing a loss on the sale.

An election under § 1.337(d)-2(c) to deduct the loss recognized on the disposition of
Sub2 stock was required to be filed with or as part of the Taxpayer consolidated group's
consolidated Federal income tax return for the year of the disposition. However, for
various reasons, the Election was not filed. Subsequently, this request was submitted
under § 301.9100-3 for an extension of time to file the Election. Taxpayer represents
that the period of limitations on assessment under § 6501(a) has not expired for the
Taxpayer group’s consolidated income tax return for the taxable year ending Date 2 or
any subsequent tax year.

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

Section 1.337(d)-2(c)(2) provides that loss is not disallowed under § 1.337(d)-2(a)(1) to
the extent the taxpayer establishes that the loss is not attributable to the recognition of
built-in gain, net of directly related expenses, on the disposition of an asset (including
stock and securities).

Section 1.337(d)-2(c)(3) provides that the statement required under § 1.337(d)-2(c)(1)
must be included with or as part of the taxpayer's return for the year of the disposition or
deconsolidation.

Generally, § 1.337(d)-2 applies with respect to dispositions and deconsolidations on or
after March 3, 2005, and before September 17, 2008.

Section 301.9100-1(a) cites §§ 301.9100-1 through 301.9100-3 as providing the
standards the Commissioner will use to determine whether to grant an extension of time
to make a regulatory election. Under § 301.9100-1(c), the Commissioner has discretion
to grant a reasonable extension of time to make a regulatory election, or a statutory
PLR-145740-10 3

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.

Section 301.9100-2 provides automatic extensions of time for making certain elections
while § 301.9100-3 provides for extensions of time for making regulatory elections that
do not meet the requirements of § 301.9100-2. Section 301.9100-3(a) provides
requests for relief 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.

In this case, the time for filing the Election is fixed by the regulations (i.e., § 1.337(d)-
2(c)(3)). Therefore, the Commissioner has discretionary authority under § 301.9100-3
to grant an extension of time for Taxpayer to file the Election, provided Taxpayer
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 Taxpayer, Company Official,
and Tax Professional explain the circumstances that resulted in the failure to timely file
a valid Election. The information establishes the request for relief was filed before the
failure to make the Election was discovered by the Internal Revenue Service, and
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)(i) and (v).

Based on the facts and information submitted, including the representations that have
been made, we conclude that Taxpayer has established it acted reasonably and in good
faith in failing to timely file the Election for Sub2, the requirements §§ 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 60
days from the date on this letter for Taxpayer to file the Election with respect to the
disposition of Sub2.

The 60-day extension of time is conditioned on Taxpayer's 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 made timely (taking into
account the time value of money).

We express no opinion with respect to whether Taxpayer qualifies substantively to
make the Election. No opinion is expressed as to the tax effects or 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 § 301.9100-3, we relied on certain
statements and representations made by the Taxpayer and its representatives.
PLR-145740-10 4

However, all of the essential facts must be verified. 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. No opinion is expressed as to
Taxpayer's consolidated group's tax liability for the years involved. A determination
thereof will be made upon audit of the Federal income tax returns involved.

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 representatives.

                                   Sincerely,



                                   _Ken Cohen__________________
                                   Ken Cohen
                                   Senior Technician Reviewer, Branch 3
                                   Office of Associate Chief Counsel
                                   (Corporate)