PLR 201323009: IRS grants more time for an insurance company to make the §831(b) election

Plain-English summary

The IRS considered a property and casualty insurance company that wanted to elect the alternative tax under section 831(b). The company said it missed the election deadline after relying on a qualified tax professional and requested relief before the IRS discovered the omission. The IRS granted 60 additional days to make the election. The relief does not decide whether the taxpayer qualifies as an insurance company under section 831, and otherwise applicable additions, penalties, and interest continue to apply.

Ruling snapshot

• Question: Can the insurance company receive more time to make the section 831(b) alternative-tax election?
• Outcome: Approved, a 60-day extension was granted under Treas. Reg. § 301.9100-3, subject to stated conditions.
• Key authorities: IRC §§ 831(b), 831(c), and 953(d); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201323009
Third Party Communication: None
Release Date: 6/7/2013
Date of Communication: Not Applicable
Index Number: 831.00-00, 9100.00-00
Person To Contact:
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CC:FIP:B04
PLR-141077-12
Date:
March 05, 2013

Legend

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

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

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

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

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

Date F = ---------------------------

Date G = ------------------------

Date H = ------------------------

Tax Year = -------

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

Company A = -------------------------------

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

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

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

This is in response to a request submitted on behalf of Taxpayer for a ruling granting an extension of time for making an election under § 831(b) of the Internal Revenue Code pursuant to § 301.9100-3 of the Procedure and administrative Regulations, to be effective for Tax 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 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 be taxed pursuant to § 831(b). The sole shareholder of Taxpayer is Company A. Taxpayer’s primary purpose is to provide malpractice insurance.

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. Taxpayer received approval of it’s § 953(d) election in a Date D letter.

On Date E, Law Firm sent an a message to Accounting Firm requesting a copy of Taxpayer’s federal tax return or extension for the tax year ending on Date F. Prior to Date E on Date G, Law Firm sent to officer of Taxpayer and to Individual a memorandum regarding important tax and financial reporting requirement. Individual did not have any knowledge regarding the formation of Taxpayer at the time of receipt of this memorandum. On or about Date H, the Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return, was filed for tax year ending Date F.

Taxpayer represents that the granting of relief by the Internal Revenue Service will not result in a lower tax liability than Taxpayer would have had if the § 831(b) election was timely made.

LAW and ANALYSIS
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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). 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 § 301.9100-1(c), the Commissioner may grant reasonable extension of time pursuant to §§ 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 § 301.9100-2 (automatic extension) must be made pursuant to § 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 301.9100-3 have been satisfied. Taxpayer requested relief under these provisions before the failure to make the regulatory election
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was discovered by the Service, and Taxpayer reasonably relied on a qualified tax professional.

RULING

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.

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,

SARAH E. LASHLEY
Assistant to the Branch Chief, Branch 4
Office of the Associate Chief Counsel
(Financial Institutions and Products)