PLR 201250010: IRS grants extra time for a worthless stock loss election

Plain-English summary

The IRS granted a corporate parent an additional 75 days to file a statement required to elect recognition of a loss on the disposition of subsidiary stock under Treas. Reg. § 1.337(d)-2(c). The parent had relied on a qualified tax professional, but the election statement was not filed with the consolidated return. The extension was conditioned on the group substantively qualifying to make the election and on its aggregate tax liability not being lower than it would have been if the election were timely. The ruling did not decide whether the parent qualified, whether the subsidiary's stock became worthless, or what the tax consequences would be under other provisions.

Ruling snapshot

• Question: Could the parent receive extra time to file the election statement for the consolidated group's worthless stock loss?
• Outcome: Approved
• Key authorities: IRC §§ 165, 337, 6511, 6662, and 6110; Treas. Reg. §§ 1.337(d)-2, 1.1502-80, and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201250010
Third Party Communication: None
Release Date: 12/14/2012
Date of Communication: Not Applicable
Person To Contact:
Index Number: 337.16-02, 1502.99-00,
-------------------, ID No. -----------------
Telephone Number:
9100.29-00
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Refer Reply To:
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CC:CORP:BR:6
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PLR-113715-12
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Date:
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September 07, 2012
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Legend

Parent = --------------------
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Sub = ------------------------
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Date 1 = ----------------------

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

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

Company Official = --------------------------
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Tax Professional = -------------------------------
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Dear -----------------:
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This letter responds to a letter dated March 15, 2012, submitted on behalf of Parent, requesting 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 with Taxpayer's consolidated Federal income tax return for the taxable year ending Date

3. Additional information was provided in correspondence dated August 21, 2012. The
   material information submitted is summarized below.

Parent is the common parent of an affiliated group of corporations that files a consolidated Federal income tax return (the “Parent Group”). Sub was wholly owned by Parent since Date 1. On Date 2 (a date prior to September 17, 2008), Parent's investment in Sub became worthless within the meaning of §§ 165(g)(3) and 1.1502- 80(c).

An election under § 1.337(d)-2(c) to recognize some or all of a loss upon the disposition of the stock of Sub was required to be filed with or as part of Parent Group's timely filed 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 has represented that it is not seeking to alter a return position for which an accuracy-related penalty has been or could have been imposed under § 6662.

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)(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 on the disposition of an asset (including stock and securities).

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)(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.

In general, § 1.337(d)-2 applies with respect to dispositions on or after March 3, 2005 and before September 17, 2008. If loss is recognized because stock of a subsidiary
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became worthless, the disposition with respect to the stock is treated as occurring on the date the stock became worthless. Section 1.337(d)-2(g).

Section 1.1502-80(c) provides that stock of a member is not treated as worthless under
§ 165 before the stock is treated as disposed of under the principles of § 1.1502- 19(c)(1)(iii).

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 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 regulatory election. Section 301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of § 301.9100-2. 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).

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 Parent to file the Election, provided Parent establishes to the satisfaction of the Commissioner 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 Parent, Company Official, and Tax Professional explain the circumstances that resulted in the failure to timely file the Election. The information establishes that Parent reasonably relied on a qualified tax professional who failed to make, or advise Parent to make, the Election. See
§ 301.9100-3(b)(1)(v).

Based on the facts and information submitted, including the affidavits submitted and the representations made, we conclude that Parent has established 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. Accordingly, provided Parent Group qualifies substantively to file the Election, we grant an extension of time under § 301.9100-3, until seventy-five (75) days from the date on this letter, for Parent to file the Election. However, this letter does not extend the period of time
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described in § 6511 by which a taxpayer is required to file a claim for credit or refund of an overpayment of tax.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, Parent must amend its return for its taxable year that ended Date 3 to claim the worthless stock loss and to include the statement described in section 1.337(d)-2(c). Parent must also attach a copy of this letter to the return and any other relevant return. Alternatively, in lieu of attaching a copy of this letter to the returns, taxpayers filing their returns electronically may attach a statement to the return that provides the date and control number of the letter ruling. The above extension of time is conditioned on Parent 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 timely made (taking into account the time value of money). We express no opinion as to Parent Group’s tax liability for the years involved. A determination thereof will be made by the Director’s office upon audit of the Federal income tax returns involved. Further, we express no opinion as to the Federal income tax effect, if any, if it is determined that Parent Group’s tax liability is lower. Section 301.9100-3(c).

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, we express no opinion with respect to whether Parent qualifies substantively to make the Election. Further, we express no opinion regarding whether or when Sub’s stock became worthless. In addition, we express no opinion as to the tax effects or consequences of filing the Election late under the provisions of any other section of the Code or 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.

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination. In addition, notwithstanding that an extension is granted under § 301.9100-3 to file the Election, any penalties and interest that would otherwise be applicable continue to apply.

This ruling letter is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.
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Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

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

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