Late NOL carryback election does not support a refund claim

Plain-English summary

This Chief Counsel Advice addresses a taxpayer's late election to carry back a net operating loss for five years instead of the normal two-year period. Counsel concluded that the election was not timely and that the IRS could not treat the defect as a mathematical error under Treas. Reg. § 1.6411-3. The taxpayer therefore was not entitled to the refund already received or the additional refund sought, although the representative could explore requesting relief under Treas. Reg. § 1.9100.

Ruling snapshot

• Question: Does a late five-year NOL carryback election support tentative refund claims, and can the IRS correct the late election as a mathematical error?
• Outcome: Advice given
• Key authorities: IRC § 172(b)(1)(H); Treas. Reg. §§ 1.6411-3 and 1.9100; Rev. Proc. 2009-52

Full text (IRS public release)

ID: CCA_2011101316585422 Number: 201144028
Release Date: 11/4/2011
Office: -----------
UILC: 6411.00-00, 172.00-00

From: ---------------------
Sent: Thursday, October 13, 2011 4:58:57 PM
To: ------------------------
Cc: ---------------------
Subject: Advice on the Form 1139 case

Thanks for your patience. I have now extensively discussed this case with all the subject matter experts in Counsel -----------------------------------------------------------------------
----------- and here are the key points.
1) The taxpayer's election under section 172(b)(1)(H) to elect a 5-year NOL carryback back in lieu of the normal 2-year period was not timely; it was required to have been made by the due date of the --------tax return, including extension (i.e., -----------------------
-------). See IRC § 172(b)(1)(H)(iii)(II). The election could be made on a Form 1120, a Form 1120, or a Form 1139. See Rev. Proc. 2009-52. In this case, the taxpayer attached the election to the Form 1139 filed in -------------- (and also the one received by the IRS in -----------). Thus, the taxpayer does not have a valid election that would serve as the basis for carrying back the ------- NOL to the ------- tax year. Consequently, the taxpayer is not entitled to the refund it already received for the ------- tax year. 2) Up until now, we have been trying to convince the IRS that the Form 1139 filed in -----
-------------- contained a mathematical error that the IRS could (and should) have corrected within the meaning of Treas. Reg. § 1.6411-3 and therefore the Form 1139 was a timely, valid tentative refund application. The lack of a valid election to carryback the NOL more than the normal 2-year period is not a mathematical error that the IRS could have corrected. Therefore, there is no legal basis for advocating to the IRS that the taxpayer is entitled to the ------- refund that it received, or the ------- refund that it has not yet received. The ------- tax year is under audit and the correct amount of the ------- NOL will be determined during the audit, and the taxpayer can file a Form 1120X for the
------- tax year to claim the correct amount of refund.

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

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

4) Lastly, as I had previously mentioned, it may be possible for the taxpayer to obtain Treas. Reg. § 1.9100 relief for the late IRC § 172(b)(1)(H) election, but that would require the taxpayer to submit a private letter ruling request. I say "may be possible" because it is not clear at this time whether the taxpayer is eligible, given that the timeliness of the election is statutory, and Treas. Reg. § 1.9100 relief is typically reserved for elections with a due date set by regulation. That is something for the taxpayer's representative to explore and decide whether to submit a private letter ruling request. Unless you have further questions, I will be closing my file on this case. Thanks.