IRS denies section 9100 relief for a late NOL carryback election

Plain-English summary

The IRS denied a request for extra time to make an election to carry back a net operating loss three, four, or five years under section 172(b)(1)(H). The taxpayers’ return was filed late after bookkeeping and cash-flow problems, and they relied on a tax professional who advised them not to file using estimated figures. The IRS concluded that the election was statutory, so relief under section 301.9100-3 for regulatory elections was unavailable. The ruling explained that any available relief under section 301.9100-2 required corrective action within six months after the unextended return due date.

Ruling snapshot

• Question: Whether the taxpayers could obtain section 301.9100-3 relief for a late section 172(b)(1)(H) NOL carryback election.
• Outcome: Denied.
• Key authorities: IRC § 172; Treas. Reg. §§ 301.9100-1, 301.9100-2, and 301.9100-3; Rev. Proc. 2009-52.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201234021 Third Party Communication: None
Release Date: 8/24/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.00-00 -------------, ID No. -----------------
Telephone Number:
--------------------
--------------------------------------------- Refer Reply To:
---------------------------- CC:IT&A:5
---------------------- PLR-149169-11
Date:
May 23, 2012

LEGEND:

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

Taxpayers’ IDs = ----------------------------------------------------
-------------------------------------------------

Taxable Year = -------

Month 1 = -----------------------------

Month 2 = ------------------

CPA = --------------------------------

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

    This letter responds to your letter dated November 1, 2011 requesting an

extension of time to make an election under § 172(b)(1)(H) of the Internal Revenue
Code. In particular, you are requesting that additional time be granted to make the
election under § 301.9100-3 of the Income Tax Regulations. We rely on the facts and
conditions set forth in your submissions dated November 1, 2011, and March 28, 2012.

     Your business consists of constructing houses and condominiums, developing

land, and engaging in other activities relating to real estate (the real estate business).
Because of adverse changes in the real estate market, you incurred substantial losses
attributable to the real estate business which caused you to incur a net operating loss
(NOL) in Taxable Year.

     For several years a management company provided daily accounting services for

the real estate business. However, the downturn in the real estate market resulted in
adverse effects on your cash flow. This eventually caused the personnel who worked
for the management company to either quit or be laid off. At the end of Month 1, as a
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necessary step in preparing your income tax returns for Taxable Year, you hired an
outside firm to provide bookkeeping services pertaining to the records of the real estate
business. The bookkeeping firm prepared a trial balance for use in preparing your
federal income tax return for Taxable Year. Your submission does not indicate whether
this was a working trial balance or a final trial balance. However, in any event your
federal income tax return for Taxable Year was not prepared and filed by the due date
of the return.

   You sought tax advice from CPA regarding the filing of your federal income tax

return for Taxable Year. CPA advised you not to file a tax return with estimated figures
for Taxable Year by the due date for that return because “since there were losses no
penalties would be imposed.” Finally, in Month 2, all the necessary work was done to
prepare your federal income tax return for Taxable Year and in that month you filed the
return. The return was prepared by CPA. However, because the return was filed late, it
was filed after the due date for making an election to carry back the NOL either 3, 4, or
5 taxable years under § 172(b)(1)(H).

    You have asked us to grant you an extension of time to make a § 172(b)(1)(H)

election pursuant to § 301.9100-3 primarily on the grounds that you failed to make a
timely election due to reasonable reliance on a professional tax advisor (CPA) who
failed to properly advise you.

   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.

   Sections 301.9100-1 through 301.9100-3 provide the standards the

Commissioner of Internal Revenue uses to determine whether to grant an extension of
time to make statutory and regulatory 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
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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 301.9100-2(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.

    Because the due date for an election under § 172(b)(1)(H) is expressly

prescribed by the statutory provision, the election is by definition a statutory election
within the meaning of § 301.9100-1(b). Revenue Procedure 2009-52, 2009-2 C.B. 744
specifies the manner in which an election under §172(b)(1)(H) must be made.
However, the revenue procedure does not dictate the due date for the election, but
simply restates the statutory due date with reference to § 172(b)(1)(H). The mere
incorporation of a statutory due date in a revenue procedure does not change a
statutory election into a regulatory election.

   As a statutory election, § 301.9100-2 applies to determine relief for late elections

under § 172(b)(1)(H). Under § 301.9100-2, taxpayers would need to take corrective
action within 6 months after the unextended due date for filing their return for the
taxpayer’s last taxable year beginning in 2009.

   While the Service has authority under § 301.9100-3 to grant relief in the case of a

regulatory election, § 301.9100-3 does not apply in the case of a statutory election.
Accordingly, the Service does not have authority under § 301.9100-3 to grant an
extension to the statutory election as set forth in § 172(b)(1)(H). Under the given facts,
information, and representations, § 301.9100-3 relief is not available in you.

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.
PLR-149169-11 4

  This ruling is directed only to the taxpayers who requested it. Section 6110 (k)(3)

provides that it may not be cited as precedent. Pursuant to the Power of Attorney
submitted by you, a copy of this letter will be sent to your authorized representatives.

                                     Sincerely,




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