PLR 1317002: IRS grants extra time to elect the section 831(b) alternative tax

Plain-English summary

The IRS granted an insurance company 60 days to make a section 831(b) election for a specified tax year. The company had missed the deadline after its accounting firm failed to request an extension despite a reminder from legal counsel. The IRS found that the taxpayer had requested relief before the Service discovered the failure, had reasonably relied on a qualified tax professional, and had represented that the relief would not lower its aggregate tax liability. The ruling did not decide whether the taxpayer otherwise qualified as an insurance company eligible for the election.

Ruling snapshot

• Question: Whether an insurance company could receive extra time to make a section 831(b) election.
• Outcome: Approved, with a 60-day extension.
• Key authorities: IRC § 831(b); Treas. Reg. §§ 301.9100-1, 301.9100-3, and 301.9100-8.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201317002 Third Party Communication: None
Release Date: 4/26/2013 Date of Communication: Not Applicable
Index Number: 9100.00-00, 831.00-00
Person To Contact:
---------------------- - --------------- --------------------------------------------------
------------------------------------------------------------ Telephone Number:

• ---

  
  ------------------------------------ Refer Reply To:
  ----------------------------------- CC:FIP:B04
  ----------------- PLR-131792-12
  -------------------------------- Date:
  January 17, 2013

Legend:

Taxpayer = -----------------------------------------------------

Year = -------

Date A = ---------------------------

Date B = ---------------------------

Foreign Country = -----------------------------------

Trust = -----------------------------------------------

Law Firm = ---------------------------------

Accounting Firm = -------------------------------

Individual = ---------------------

Date C = --------------------------

Date D = ------------------------

Date E = --------------------

Month A = ---------------
PLR-131792-12 2

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

   This is in response to a request submitted on behalf of Taxpayer for a ruling

granting an extension of time for making the election under § 831(b) of the Internal
Revenue Code pursuant to § 301.9100-3 of the Procedure and Administration
Regulations, to be effective for Year.

  The ruling contained in this letter is based upon information and representations

submitted by 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 ruling request, it is subject to verification on examination.

FACTS

   Taxpayer represents that it was incorporated on Date A and licensed to issue

various property and casualty insurance contracts on Date B under the laws of Foreign
Country. Taxpayer represents that it qualifies as an insurance company for federal
income tax purposes making it eligible to have the option to elect to be taxed pursuant
to § 831(b). All of the stock of Taxpayer is owned by Trust, which is an irrevocable
trust.

  Law Firm was retained to provide legal counsel on the formation and operation of

Taxpayer, while Accounting Firm, and specifically Individual, a certified public
accountant, was retained to prepare Taxpayer’s tax returns. On Date C, Law Firm filed
a Foreign Insurance Company Election under Section 953(d) statement for Taxpayer.

   On Date D, Law Firm sent a reminder memorandum to Accounting Firm

regarding the time for requesting an extension of time for Taxpayer to file a Year income
tax return. Due to an oversight, Accounting Firm did not timely request an extension.
On Date E, Accounting Firm discovered the error and during Month A, Taxpayer filed a
Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return,
and this request for relief under § 301.9100-3.

    Taxpayer represents that granting relief by the Internal Revenue Service will not

result in a lower tax liability than Taxpayer would have had if the section 831(b) election
was timely made.

LAW and ANALYSIS

   Insurance companies other than life insurance companies are taxable under

§ 831. However, certain insurance companies can elect to pay an alternative tax
provided in § 831(b) on only their taxable investment income. Section 831(b)(2)(A)(ii)
requires that a company elect the application of the alternative tax imposed by § 831(b).
PLR-131792-12 3

Pursuant to § 301.9100-8(a)(2)(i), this election must be made by the due date (taking
into account any extensions of time to file obtained-by the taxpayer) for the first taxable
year for which the election is effective.

    Under section 301.9100-1(c), the Commissioner may grant reasonable extension

of time pursuant to sections 301.9100-2 and 301.9100-3 to make a regulatory election
(but no more than 6 months except in the case when the taxpayer is abroad), under all
subtitles of the Code except subtitles E,G, H and I. Section 831(b) is part of subtitle A.

    Section 301.9100-3 provides that requests for extensions of time for regulatory

elections that do not meet the requirements of section 301.9100-2 (automatic extension)
must be made pursuant to section 301.9100-3. Under § 301.9100-3(a), relief will be
granted when the taxpayer provides the evidence to establish to the satisfaction of the
Commissioner that the taxpayer acted reasonably and in good faith, and the grant of
relief will not be prejudice the interests of the government.

   Under § 301.9100-3(b)(1), a taxpayer is deemed to have acted reasonably and in

good faith if the taxpayer: (i) requests relief under this section before the failure to make
the regulatory election is discovered by the Internal Revenue Service; (ii) failed to make
the election because of intervening events beyond the taxpayer’s control: (iii) failed to
make the election because, after exercising reasonable diligence (taking into account
the taxpayer’s experience and the complexity of the return or issue), the taxpayer was
unaware of the necessity for the election; (iv) reasonably relied on the advice of the
Internal Revenue Service; or (v) reasonably relied on a qualified tax professional,
including a tax professional employed by the taxpayer and the tax professional failed to
make or advise the taxpayer to make the election.

   Under § 301.9100-3(b)(2), a taxpayer will not be considered to have reasonably

relied on a qualified tax professional if the taxpayer knew or should have known that the
professional was not competent to render advice on the regulatory election or was not
aware of all relevant facts.

   Under § 301.9100-3(c)(1), the interests of the government are not prejudiced if

the tax liability in the aggregate for all taxable years affected by the election will not be
lower by granting the relief than if the election had been timely made (taking into
account the time value of money).

   Based solely on the facts submitted and the representations made, we conclude

that the requirements of § 301.9100-1 and 302.9100-3 have been satisfied. Taxpayer
requested relief under these provisions before the failure to make the regulatory election
was discovered by the Service, and Taxpayer reasonably relied on a qualified tax
professional.

RULING
PLR-131792-12 4

    Taxpayer is granted an extension of time until 60 days following the date of this

letter to make the election to be subject to the alternative tax provided in § 831(b)(2)(A)
for Year.

CAVEATS

   Notwithstanding that an extension of time is granted under § 301.9100-3 to make

an election under § 831(b)(2)(A), additions, penalties and interest that would otherwise
be applicable, if any, continue to apply with respect to the tax return for Year.

    No ruling has been requested, and no opinion is expressed (or implied) whether

Taxpayer is engaged in the issuing of insurance or annuity contracts or the reinsuring of
risks underwritten by insurance companies; or whether Taxpayer qualifies as an
insurance company under § 831(c) for Year. (See § 301.9100-1(a) which provides that
the granting of an extension of time is not a determination that the taxpayer is otherwise
eligible to make the extension.)

      A copy of this ruling letter should be attached with Taxpayer’s federal income tax

return.

  This 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 a power of attorney on file in this office, a copy of this ruling is being

furnished to your authorized representative.

                                               Sincerely,




                                               JOHN E.GLOVER
                                               Senior Counsel, Branch 4
                                               Office of the Associate Chief Counsel
                                               (Financial Institutions and Products)