IRS grants extra time for a closing-of-the-books election

Plain-English summary

The IRS considered a loss corporation's late election to close its books for an ownership change under § 1.382-6(b). The taxpayer missed the deadline and later requested relief under § 301.9100-3, representing that it had relied on a qualified tax professional and that the request was made before the failure was discovered by the IRS. The IRS found reasonable cause, good faith, and no prejudice to the government, and granted 45 days to file the election. The ruling conditioned the extension on the taxpayer's aggregate tax liability not being lower than it would have been if the election had been timely.

Ruling snapshot

• Question: Could the loss corporation receive an extension of time to make its closing-of-the-books election?
• Outcome: Approved, 45-day extension granted
• Key authorities: IRC § 382; Treas. Reg. §§ 1.382-6 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201408023 Third Party Communication: None
Release Date: 2/21/2014 Date of Communication: Not Applicable
Index Number: 382.00-00, 9100.22-00
Person To Contact:
---------------------- ------------------------, ID No. --------------
--------------------------- Telephone Number:
------------------------------------------- --------------------
------------------------------------------------------------ Refer Reply To:
-------- CC:CORP:B05
----------------------------- PLR-128463-13
------------------------------ Date:
November 21, 2013

Legend

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

Year 1 = ------------------------------------------------------

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

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

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

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

This letter responds to your request for a ruling, submitted by your authorized
representative, dated June 21, 2013, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to file an election. The
extension is being requested for Taxpayer to file an election under § 1.382-6(b) of the
Income Tax Regulations (the “Election”) to make a closing-of-the-books election with
respect to an ownership change, within the meaning of § 382 of the Internal Revenue
Code. The information provided in that letter and in later correspondence is
summarized below.

PLR-128463-13 2

                               Summary of Facts

Taxpayer is a loss corporation within the meaning of § 1.382-2(a)(1). On Date 1,
Taxpayer experienced an ownership change as defined in § 382(g) and, consequently,
§ 382(a) limited its ability to offset post-change taxable income by pre-change losses
(the “ownership change”).

An election under § 1.382-6(b) to close its books with respect to the ownership change
was due by the due date of Taxpayer’s tax return for the Year 1 taxable year, but for
various reasons, Taxpayer did not make the Election. Subsequent to Taxpayer filing its
return for the Year 1 taxable year, Taxpayer submitted this request, under
§ 301.9100-3, for an extension of time to file the Election. The period of limitations on
assessment under § 6501(a) has not expired for the taxable year for which the election
should have been filed or any subsequent taxable year. Taxpayer 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 1.382-6(b)(1) allows a loss corporation to elect to allocate its net operating loss
or taxable income and its net capital loss or modified capital gain net income for the
change year between the pre-change period and the post-change period as if the loss
corporation’s books were closed on the change date.

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 regulatory election.
Section 301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for
making certain elections. Requests for relief under § 301.9100-3 will be granted when
the taxpayer provides evidence to establish 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.,
§ 1.382-6(b)(2)). Therefore, the Commissioner has discretionary authority under
§ 301.9100-3 to grant an extension of time for Taxpayer to file the Election, provided
that Taxpayer shows 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.

PLR-128463-13 3

Information, affidavits, and representations submitted by Taxpayer, Tax Professional,
and Company Official explain the circumstances that resulted in the failure to file timely
a valid Election. The information establishes that Taxpayer reasonably relied on a
qualified tax professional who failed to make, or advise Taxpayer to make, the Election
and that the request for relief was filed before the failure to make the 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 representations made, we
conclude that Taxpayer 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, we grant an extension of time
under § 301.9100-3, until forty-five days from the date on this letter, for Taxpayer to file
the Election.

The above extension of time is conditioned on the Taxpayer’s tax liability being not
lower, in the aggregate, for all years to which the Election applies, and all subsequent
years, than it would have been if the Election had been timely made (taking into account
the time value of money). No opinion is expressed as to the amount of 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.

Taxpayer should file the election in accordance with § 1.382-6(b)(2). Taxpayer’s return
must be amended to attach the election statement required by § 1.382-6(b)(2). A copy
of this letter should be attached to the election statement. Alternatively, if Taxpayer files
its amended return electronically, Taxpayer may satisfy this latter requirement by
attaching to the return a statement that provides the date and control number
(PLR-128463-13) of this ruling letter.

                                      Caveats

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.

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 addition, we express no opinion as to the tax effects or any other tax consequences
of filing the Election late under the provisions of any other section of the Code and
regulations, or as to the tax treatment of any conditions existing at the time of, or effects
resulting from, filing the Election late that are not specifically set forth in the above
ruling. For purposes of granting relief under § 301.9100-3, we relied on certain

PLR-128463-13 4

statements and representations made by Taxpayer, Tax Professionals, and Company
Official. The appropriate Service office, however, should verify all essential facts. In
addition, notwithstanding that an extension is granted under § 301.9100-3 to file the
Election, penalties and interest that would otherwise be applicable, if any, continue to
apply.

                             Procedural Statements

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

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

                                   Sincerely,


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

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