PLR 1202005: IRS denies late election relief for an NOL carryback

Plain-English summary

The IRS denied a request for additional time to elect an extended net operating loss carryback under IRC § 172(b)(1)(H). The taxpayers had directed their accounting firm to make the election, but the firm filed the returns without doing so and discovered the omission later. The IRS concluded that the request was untimely and that the statutory election could not be extended beyond the applicable deadlines under IRC §§ 6081 and 9100. The taxpayers therefore could not use the requested five-year carryback period.

Ruling snapshot

• Question: Could the taxpayers receive additional time to make an election for an extended NOL carryback period?
• Outcome: Denied, the IRS could not grant additional time for the late statutory election.
• Key authorities: IRC §§ 172(b)(1)(H) and 6081; Treas. Reg. §§ 301.9100-1, 301.9100-2, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201202005 Third Party Communication: None
Release Date: 1/13/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 6081.00-00, 9100.00-00 --------------------, ID No. ------------
Telephone Number:
---------------------
--------------------------------------- Refer Reply To:
-------------------- CC:IT&A:5
--------------------------------- PLR-116445-11
In Re: Date:
--------------------------------------- October 12, 2011
--------------------

LEGEND:

Taxpayers = ---------------------------------------------------
----------------------------------------------

Taxable Year = -------

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

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

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

Form = -----------------------------------------------------------

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

This letter responds to your letter dated April 11, 2011 requesting an extension of time
to make an election under § 172(b)(1)(H) of the Internal Revenue Code. In particular,
Taxpayers request that Taxpayers be granted additional time to make the election
under § 6081 of the Internal Revenue Code and §301.9100-1 of the Income Tax
Regulations.

STATEMENT OF FACTS

We rely on the information provided and the representations made in Taxpayers’
submissions dated April, 11, 2011.

Taxpayers sustained a net operating loss (“NOL”) in Taxable Year. Taxpayers
represent that they have no formal business, accounting or finance background or
experience. Accordingly, Taxpayers relied on a public accounting and consulting firm
PLR-116445-11 2

(“accounting firm”) for planning and preparing their Federal tax returns, as well as for
general accounting, auditing, and business tax and consulting services.

During Taxable Year, Taxpayers met with the accounting firm, which recommended
making the election pursuant to § 172(b)(1)(H) to carry back an NOL from Taxable Year
to the fifth taxable year preceding Taxable Year. Taxpayers agreed and directed the
accounting firm to take the requisite steps to carry back Taxpayers’ NOL for Taxable
Year to the fifth preceding taxable year.

Taxpayers’ original due date for their Federal tax returns for Taxable Year is Date 1.
Taxpayers extended their due date to Date 2, which is six months from Date 1, and the
accounting firm electronically filed Taxpayers’ tax returns on Date 2. However, the
accounting firm did not make the election to apply the extended carryback period under
§ 172(b)(1)(H). On Date 3, while preparing Form for Taxpayers, the accounting firm
discovered that the § 172(b)(1)(H) election was not made for Taxpayers. On April 11,
2011, the Taxpayers filed this private letter ruling request.

LAW AND ANALYSIS

Section 172(a) allows a deduction equal to the aggregate of the NOL carryovers and
carrybacks to the taxable year. Section 172(b)(1)(A)(i) provides that an NOL for any
taxable year generally must be carried back to each of the 2 years preceding the
taxable year of the NOL.

Section 172(b)(1)(H)(i) permits a taxpayer to elect to carry back its applicable NOL to 3,
4, or 5 years preceding the taxable year of the applicable NOL. Section 172(b)(1)(H)(ii)
provides that the applicable NOL means the taxpayer’s NOL for a taxable year ending
after December 31, 2007, and beginning before January 1, 2010.

Section 172(b)(1)(H)(iii) provides that the election under § 172(b)(1)(H) is required to be
made in a manner prescribed by the Secretary, and must be made by the due date
(including extensions) for filing the return for the taxpayer’s last taxable year beginning
in 2009.

Section 6081(a) provides that the Secretary may grant a reasonable extension of time
for filing any return, declaration, statement, or other document required by the Internal
Revenue Code or by Income Tax Regulations. Except in the case of taxpayers who are
abroad, no such extension shall be for more than 6 months.

Section 1.6081-1(b)(1) provides that, in part, a taxpayer desiring an extension of the
time for filing a return, statement, or other document shall submit an application for
extension on or before the due date of such return, statement, or other document.
PLR-116445-11 3

Section 301.9100-1(a) provides, in part, that the regulations under §§ 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. It also provides
that the regulations under §§ 301.9100-1 and 301.9100-2 provide an automatic
extension of time to make certain statutory elections.

Section 301.9100-1(b) defines (A) a statutory election as an election whose due date is
prescribed by statute, and (B) a regulatory election as an election whose due date is
prescribed by a regulation published in the Federal Register, or a revenue ruling,
revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Section 301.9100-1(c) provides that the Commissioner in exercising the
Commissioner’s discretion may grant a reasonable extension of time under the rules set
forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election, or a statutory
election (but no more than 6 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.

Section 301.9100-2(b) provides a taxpayer with an automatic extension of 6 months
from the due date of a timely filed return (excluding extensions), provided the taxpayer
takes “corrective action” within that 6-month period. Under § 301.9100-2(b), a taxpayer
cannot extend the due date of a statutory election beyond the extended due date of the
return on which the election should have been made.

Section 301.9100-3 provides the standard the Commissioner of Internal Revenue uses
to determine whether to grant an extension of time to make regulatory elections.

Taxpayers’ request for an extension of time was untimely. Section 1.6081-1(b)(1)
provides that “[a] taxpayer desiring an extension of the time for filing a return . . . shall
submit an application for extension on or before the due date of such return[.]”
Taxpayers did not submit an application for an extension on or before the due date of
the return, Date 1, and therefore, any application submitted past that due date is
untimely. Moreover, unless Taxpayers were abroad, they cannot obtain extensions
under § 6081 beyond six months from the original due date for filing the return. See
§ 6081(a); Rev. Rul. 93-85, 1993-2 C.B. 297. As there is no indication that Taxpayers
were abroad, Taxpayers cannot obtain a § 6081 extension to any date beyond six
months from Date 1, which is Date 2. As the requested extension is to a date after Date
2, § 6081 does not authorize the Secretary to grant such an extension.

The due date for an election under § 172(b)(1)(H) is expressly prescribed by the
statutory provision, and accordingly, the election is by definition a statutory election
within the meaning of § 301.9100-1(b). As a statutory election, § 301.9100-2 applies to
determine relief for late elections under § 172(b)(1)(H). Under § 301.9100-2, Taxpayers
PLR-116445-11 4

would need to take corrective action within 6 months after the unextended due date for
filing their return for Taxpayers’ last taxable year beginning in 2009. In this case,
Taxpayers did not do so. Section 301.9100-1 does not provide an extra extension of
time to make a statutory election separate from the automatic extension of time to make
certain statutory elections provided in § 301.9100-2.

Consequently, we are unable to grant Taxpayers’ request for additional time to make an
election under § 172(b)(1)(H).

DISCLAIMERS

Except as provided above, no opinion is expressed as to the Federal tax treatment of
the transaction under any other provisions of the Internal Revenue Code and the
Income Tax Regulations that may be applicable or under any other general principles of
Federal income taxation. Neither is any opinion expressed as to the tax treatment of
any conditions existing at the time of, nor effects resulting from, the transaction that are
not specifically covered by the above ruling.

This ruling is directed only to Taxpayers. Section 6110 (k)(3) provides that it may not be
cited as precedent. Pursuant to the Power of Attorney submitted by Taxpayers, a copy
of this letter will be sent to Taxpayers’ authorized representatives.

                                                    Sincerely,




                                                    William A. Jackson
                                                    Branch Chief, Branch 5
                                                    Office of Associate Chief Counsel
                                                    (Income Tax and Accounting)