PLR 201248012: IRS grants more time for CNOL carryback elections

Plain-English summary

The IRS granted a consolidated group more time to revoke an election waiving a net operating loss carryback and to elect an extended carryback period. The group missed the deadline after relying on a qualified tax professional, and the IRS found that it acted reasonably and in good faith. The extension was conditioned on the group substantively qualifying for the elections and on its aggregate tax liability not being lower than it would have been if the elections had been timely. The ruling did not determine whether the group substantively qualified or what its final tax liability would be.

Ruling snapshot

• Question: Could the consolidated group receive more time to revoke its carryback waiver and make an extended CNOL carryback election?
• Outcome: Approved
• Key authorities: IRC §§ 172(b)(1)(H), 1502, and 6110(k)(3); Treas. Reg. §§ 1.1502-21 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201248012
Third Party Communication: None
Release Date: 11/30/2012
Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.22-00, 1502.21-00
---------------------------,
ID No. -----------------
Telephone Number:
------------------------------
--------------------
--------------------------------
Refer Reply To:
-----------------------------
CC:CORP:2
PLR-120896-12
Date:

Attn: ------------------------------------------------------- August 30, 2012
----------------------------------------------------------

Legend

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

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

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

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

Date 4 = ---------------------------

X = --

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

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

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

This letter responds to a letter dated May 14, 2012, submitted on behalf of Parent, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to revoke an election to relinquish the carryback period with regard to a consolidated net operating loss and to make an election to extend the
PLR-120896-12
2

carryback period with regard to the (“CNOL”) (together the “Revocation and Election”).. The material information submitted for consideration is summarized below.

Parent is the common parent of a consolidated group (the “Parent Group”).
Parent Group incurred a CNOL in the taxable year ending Date 2 (the “Year 2 CNOL”). Parent made an election under § 1.1502-21(b)(3)(i) to relinquish the entire CNOL carryback period with regard to the Year 2 CNOL. Parent is now seeking to revoke the carryback waiver pursuant to § 1.1502-21T(b)(3)(v)(A)(2) and to make the election pursuant to § 172(b)(1)(H) to carry back the Year 2 CNOL X years, to its taxable year ending on Date 1.

Parent timely elected, pursuant to § 1.1502-21T(b)(3)(i), to relinquish the entire carryback period with regard to its Year 2 CNOL. Parent was required to file the Revocation and Election in order to carry back the Year 2 CNOL to its taxable year ending on Date 1 and to obtain the benefit of § 56(d)(1)(A)(ii)(l). The Revocation and Election was due on Date 3, but for various reasons a valid Revocation and Election was not filed. Subsequently, this request was submitted, under § 301.9100-3, for an extension of time to file the Revocation and Election. The period of limitations on assessment under § 6501(a) has not expired for the Parent Group’s consolidated income tax return for the taxable year in which the Year 2 CNOL was incurred or any subsequent taxable year. Parent has represented that it is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under § 6662.

Section 172(b)(1)(A)(i) generally permits a taxpayer to carry back a net operating loss (“NOL”) to each of the 2 taxable years preceding the taxable year of the NOL.

Section 172(b)(1)(H)(i) permits a taxpayer to elect to carry back an applicable net operating loss (“applicable NOL”) to each of the 3, 4, or 5 taxable years preceding the taxable year of the applicable NOL, in lieu of the 2-year period provided by § 172(b)(1)(A)(i). Section 172(b)(1)(H)(ii) provides that an “applicable NOL” is 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) shall be made by the due date (including extension of time) for filing the return for the taxpayer’s last taxable year beginning in 2009. The election is irrevocable and, in general, may be made only with respect to one taxable year.

Section 1502 provides that the Secretary shall prescribe such regulations as he may deem necessary in order that the tax liability of any affiliated group of corporations making a consolidated return and of each corporation in the group, both during and after the period of affiliation, may be returned, determined, computed, assessed, collected, and adjusted, in such manner as clearly to reflect the income tax liability and the various
PLR-120896-12
3

factors necessary for the determination of such liability, and in order to prevent avoidance of such tax liability. In carrying out the preceding sentence, the Secretary may prescribe rules that are different from the provisions of chapter 1 that would apply if such corporations filed separate returns.

Section 1.1502-21(b) of the Income Tax Regulations provides that losses taken into account in determining a CNOL may be carried to other taxable years (whether consolidated or separate) only under paragraph (b) of § 1.1502-21.

Section 1.1502-21(b)(1) provides that NOL carryovers and carrybacks to a taxable year are determined under the principles of § 172 and § 1.1502-21.

Section 1.1502-21T(b)(3)(v)(A)(1) provides that a consolidated group may elect an extended carryback period pursuant to § 172(b)(1)(H) with regard to a CNOL arising in a taxable year ending after December 31, 2007, and beginning before January 1, 2010.

Section 1.1502-21T(b)(3)(v)(A)(2) provides that a consolidated group may revoke a prior election pursuant to § 1.1502-21(b)(3)(i) to relinquish the entire carryback period with respect to an Applicable CNOL, but only if the group makes the election pursuant to § 172(b)(1)(H) with regard to such Applicable CNOL.

Rev. Proc. 2009-52, 2009-2 C.B. 744, provides when and how a taxpayer may make an election under § 172(b)(1)(H) for an extended carryback period and when and how to revoke an election to waive the carryback period. Section 4.01(2) of Rev. Proc. 2009-52 provides that the common parent of a consolidated group makes the election for the group. Sections 4.01(3) and 4.01(4) of Rev. Proc. 2009-52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated return for the taxable year of the applicable CNOL, by attaching a statement to the taxpayer’s amended consolidated return applying the applicable CNOL to the carryback year, or by attaching a statement to a claim for a tentative carryback adjustment on Form 1139, Corporation Application for Tentative Refund. Sections 4.01(3)(b), 4.01(4)(b) and 4.03 of Rev. Proc. 2009-52 require the revocation of the waiver of the carryback period and the election of the extended carryback period, regardless of the manner in which made, to be filed no later than the due date (including extensions) for filing the return for the taxpayer’s last taxable year beginning in 2009.

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 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
PLR-120896-12
4

regulatory election. Section 301.9100-1(a). 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 election by a consolidated group to revoke a previous carryback waiver and the election to extend the carryback period under § 172(b)(1)(H) for a CNOL is regulatory elections. Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Parent to file the Revocation and Election provided Parent establishes to the satisfaction of the Commissioner that it acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government.

Information, affidavits, and representations submitted by Parent, Company Official, and Tax Professional explain the circumstances that resulted in the failure to timely file the Revocation and Election. The information establishes that Parent reasonably relied on a qualified tax professional who failed to make or advise Parent to make the Revocation and Election, and that the request for relief was filed before the failure to timely make the Revocation and 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 shown it acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Accordingly, provided the Parent Group qualifies substantively to revoke the previously filed carryback waiver and to file the election for an extended carryback period, we grant an extension of time under § 301.9100-3, until Date 4, for Parent to file the Revocation and Election.

The time in which Parent may file a Form 1139 for the Year 2 CNOL has expired.
However, Parent may file the Revocation and Election with respect to, the Year 2 CNOL on Form 1120X, Amended U.S. Corporation Income Tax Return, for the taxable year ending Date 2, according to the procedures set forth in Rev. Proc. 2009-52. A copy of this letter must be attached to the Form 1120X. If Parent files Form 1120X electronically, Parent may satisfy the requirement of attaching a copy of this letter by attaching a statement to the Parent Group’s amended return that provides the date and control number (PLR-120896-12) of this letter ruling.

The above extension of time is conditioned on the Parent Group’s tax liability, if any, not being lower in the aggregate for all years to which the Revocation and Election applies than it would have been if the Revocation and Election had been timely made, (taking into account the time value of money). We express no opinion as to the Parent Group’s tax liability for the years involved. A determination thereof will be made by the Director’s office upon audit of the income tax returns involved.
PLR-120896-12
5

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter. In particular, we express no opinion with respect to whether Parent qualifies substantively to make the Revocation and Election. In addition, we express no opinion as to the tax effects or consequences of filing the Revocation and 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 Revocation and Election late that are not specifically set forth in this letter.

For purposes of granting relief under § 301.9100-3, we relied on certain statements and representations made under penalty of perjury by Parent, Company Official, and Tax Professional. The Director, however, should verify all essential facts. In addition, notwithstanding that an extension is granted under § 301.9100-3 to file the Revocation and Election, any penalties and interest that would otherwise be applicable continues to apply.

This letter ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file in this office, a copy of this letter is being sent to your authorized representatives.

Sincerely,

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

cc: