PLR 1323009: 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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---------------------------------------------- Telephone Number:
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---------------------------------------------- Refer Reply To:
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PLR-141077-12
Date:
March 05, 2013

Legend

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

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 = ------------------------------------------------
PLR-141077-12 2

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
PLR-141077-12 3

   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
PLR-141077-12 4

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)