Consolidated group received more time to elect extended NOL carryback

Plain-English summary

A federal agency acting as receiver and authorized agent for a consolidated group sought to carry a consolidated net operating loss back beyond the usual two-year period under section 172(b)(1)(H). The required election was not filed by its deadline, and the omission was discovered before the IRS identified it. Based on the submitted affidavits and representations, the IRS found that the group acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days from the ruling date to file the election, conditioned on substantive eligibility and on the group's aggregate tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: Could the consolidated group receive more time to elect an extended carryback period for its consolidated net operating loss?
• Outcome: Approved, with 60 days to file and subject to stated eligibility and tax-liability conditions.
• Key authorities: IRC §§ 172 and 1502; Treas. Reg. §§ 1.1502-21 and 301.9100-3; Rev. Proc. 2009-52

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201431012 Third Party Communication: None
Release Date: 8/1/2014 Date of Communication: Not Applicable
Index Number: 9100.22-00, 1502.21-00
Person To Contact:
--------------------- -----------------------, ID No. -------------------
-------------------------- ---------------------------------------------------
----------------------------------------------------- Telephone Number:
-------------------------------------- ----------------------
------------------------- Refer Reply To:
---------------------------- CC:CORP:B02
PLR-144055-13
Date:
In Re: --------------------------------- April 16, 2014

LEGEND

Parent = ---------------------------------

Bank = -----------------------------

Agency = -----------------------------------------------------

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

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

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

Date 4 = ----------------------------

Date 5 = -------------------

X = --

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

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

   This letter responds to a letter dated August 27, 2013, submitted by Agency as

agent of the consolidated group of which Parent is the common parent (the “Parent
Group”), requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to file an election. In particular, Agency is requesting an
extension of time for the Parent Group to elect an extended carryback period (the
“Election”) for a consolidated net operating loss (“CNOL”). The material information
submitted for consideration is summarized below.

    Parent is the common parent of the Parent Group, of which Bank is a member.

On Date 2, Bank was closed and Agency was appointed Receiver. On Date 5, pursuant
to § 301.6402-7, Agency was authorized by the Internal Revenue Service to act as an
agent of the carryback year group, the loss year group, or any other group of which
Bank is a member for any matter pertaining to the determination of the refund or
tentative carryback adjustment for the carryback and loss years of the Parent Group.

  The Parent Group incurred a CNOL in the taxable year ending Date 3 (the “Year

3 CNOL”). Agency, on behalf of the Parent Group, seeks to carry back the Year 3
CNOL X years, to the Parent Group’s taxable year ending on Date 1, under
§ 172(b)(1)(H)(i) of the Internal Revenue Code.

   The Parent Group was required to file the Election in order to carry back the Year

3 CNOL to its taxable year ending on Date 1 and to obtain the benefit of
§ 56(d)(1)(A)(ii)(I). The Election was due on Date 4, but for various reasons a valid
Election was not filed. After the due date for the Election, it was discovered that the
Election had not been filed. Subsequently, this request was submitted, under
§ 301.9100-3, for an extension of time to file the Election. Agency has represented that
the Parent Group is not seeking to alter a return position for which an accuracy related
penalty has been or could be imposed under § 6662.

   Section 172(b)(1)(A)(i) generally permits a taxpayer to carry back a net operating

loss (“NOL”) to each of the 2 taxable years preceding the taxable year of the NOL.

   Section 172(b)(1)(H)(i) permits a taxpayer to elect to carry back an applicable net

operating loss (“applicable NOL”) to each of the 3, 4, or 5 taxable years preceding the
taxable year of the applicable NOL, in lieu of the 2-year period provided by
§ 172(b)(1)(A)(i). Section 172(b)(1)(H)(ii) provides that an “applicable NOL” is the
taxpayer’s NOL for a taxable year ending after December 31, 2007, and beginning
before January 1, 2010.

    Section 172(b)(1)(H)(iii) provides that the election under § 172(b)(1)(H) shall be

made by the due date (including extension of time) for filing the return for the taxpayer’s
last taxable year beginning in 2009. The election is irrevocable and, in general, may be
made only with respect to one taxable year.

   Section 1502 provides that the Secretary shall prescribe such regulations as he

may deem necessary in order that the tax liability of any affiliated group of corporations
making a consolidated return and of each corporation in the group, both during and after
the period of affiliation, may be returned, determined, computed, assessed, collected,
and adjusted, in such manner as clearly to reflect the income tax liability and the various
factors necessary for the determination of such liability, and in order to prevent
avoidance of such tax liability. In carrying out the preceding sentence, the Secretary
may prescribe rules that are different from the provisions of chapter 1 that would apply if
such corporations filed separate returns.

   Section 1.1502-21(b) of the Income Tax Regulations provides that losses taken

into account in determining a CNOL may be carried to other taxable years (whether
consolidated or separate) only under paragraph (b) of § 1.1502-21.

   Section 1.1502-21(b)(1) provides that NOL carryovers and carrybacks to a

taxable year are determined under the principles of § 172 and § 1.1502-21.

    Section 1.1502-21T(b)(3)(v)(A)(1) provides that a consolidated group may elect

an extended carryback period pursuant to § 172(b)(1)(H) with regard to a CNOL arising
in a taxable year ending after December 31, 2007, and beginning before January 1,
2010.

     Rev. Proc. 2009-52, 2009-49 I.R.B. 744, provides when and how a taxpayer may

make an election under § 172(b)(1)(H). Section 4.01(2) of Rev. Proc. 2009-52 provides
that the common parent of a consolidated group makes the election for the group.
Sections 4.01(3) and 4.01(4) of Rev. Proc. 2009-52 permit the election to be made for
consolidated taxpayers by attaching a statement to the original or amended
consolidated return for the taxable year of the applicable CNOL, by attaching a
statement to the taxpayer’s amended consolidated return applying the applicable CNOL
to the carryback year, or by attaching a statement to a claim for a tentative carryback
adjustment on Form 1139, Corporation Application for Tentative Refund. Sections
4.01(3)(b) and 4.01(4)(b) of Rev. Proc. 2009-52 require the election, regardless of the
manner in which made, to be filed no later than the due date (including extensions) for
filing the return for the taxpayer’s last taxable year beginning in 2009.

  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). 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).

   The election by a consolidated group to extend the carryback period under

§ 172(b)(1)(H) for a CNOL is a regulatory election. Therefore, the Commissioner has
discretionary authority under § 301.9100-3 to grant an extension of time for the Parent
Group to file the Election, provided the Parent Group establishes to the satisfaction of
the Commissioner 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.

    Information, affidavits, and representations submitted by Agency and Agency Tax

Professional explain the circumstances that resulted in the failure to timely file a valid
Election. The information establishes that the request for relief was filed before the
failure to timely 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 the affidavits submitted

and the representations made, we conclude that the Parent Group 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 that, and to the extent that, the Parent Group qualifies substantively to file the
Election, we grant an extension of time under § 301.9100-3, until sixty (60) days from
the date on this letter, for the Parent Group to file the Election. This letter does not
extend the period of time described in § 6511 by which a taxpayer is required to file a
claim for credit or refund of an overpayment of tax.

   The Parent Group may file the Election under § 172(b)(1)(H)(i) to carry back the

Year 3 CNOL to its taxable year ending on Date 1 on Form 1120X, Amended U.S.
Corporation Income Tax Return, for the taxable year ending either Date 1 or Date 3,
according to the procedures set forth in Rev. Proc. 2009-52. A copy of this letter must
be attached to the Form 1120X. If the Parent Group files Form 1120X electronically, the
Parent Group may satisfy the requirement of attaching a copy of this letter by attaching
a statement to the Parent Group’s amended return that provides the date and control
number (PLR-144055-13) of this letter ruling.

    The above extension of time is conditioned on the 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 the Parent Group’s tax liability for the
years involved. A determination thereof will be made by the Director’s office upon audit
of the income tax returns involved.

   Except as expressly provided herein, no opinion is expressed or implied

concerning the tax consequences of any item discussed or referenced in this letter. In
particular, we express no opinion with respect to whether the Parent Group qualifies
substantively to make the Election. 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 Internal Revenue 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 this letter.

   For purposes of granting relief under § 301.9100-3, we relied on certain

statements and representations made under penalty of perjury by Agency and Agency
Tax Professional. The Director, however, should verify all essential facts. 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 letter 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 the power of attorney on file in this office, a copy of this letter is being

sent to your authorized representative.

                                    Sincerely,



                                    Ken Cohen
                                    Acting Chief, Branch 2
                                    Office of Associate Chief Counsel (Corporate)