Parent group gets late consolidated return election relief

Plain-English summary

A parent corporation and its newly formed subsidiary filed separate federal income tax returns for their first affiliated year instead of making a timely consolidated return election. The parent requested discretionary relief after discovering the missed election and before the IRS discovered it. The IRS concluded that the parent acted reasonably and in good faith and granted 30 days to make the election by filing a consolidated return with the required Form 1122. Relief was conditioned on the group's aggregate tax liability not being lower than it would have been with a timely election, and the IRS did not decide whether the group otherwise qualified to file a consolidated return.

Ruling snapshot

• Question: May the parent and subsidiary make a late election to file a consolidated federal income tax return?
• Outcome: Approved, subject to substantive eligibility and a tax-liability condition
• Key authorities: IRC § 1502; Treas. Reg. §§ 1.1502-75(a)(1), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201442018 Third Party Communication: None
Release Date: 10/17/2014 Date of Communication: Not Applicable
Index Numbers: 1502.75-00, 9100.19-00
Person To Contact:
------------------------- -----------------, ID No. ----------------
----------------------------- Telephone Number:
---------------------------------- --------------------
--------------------------- Refer Reply To:
--------------- CC:CORP:B04
---------------------------- PLR-116600-14
Date:
July 10, 2014

Legend

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

Sub = --------------------------------------------------------------

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

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

Year 1 = ------

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

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

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

This letter ruling responds to a letter from your authorized representatives, dated April
16, 2013, requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of the
Procedure and Administration Regulations to file an election. The extension is being
requested for Parent and Sub to make an election to file a consolidated Federal income
PLR-116600-14 2

tax return, with Parent as the common parent, under § 1.1502-75(a)(1) of the Income
Tax Regulations (the “Election”), effective for the Year 1 taxable year. The material
information provided in that letter and in subsequent correspondence is summarized
below.

On Date 1 (a date within Year 1) Parent, a stand-alone corporation, formed Sub, with
Parent and Sub constituting the entire affiliated group (the “Parent Group”). On Date 2,
Parent filed a separate Federal income tax return for the entire Year 1 taxable year.
Also on Date 2, Sub filed a separate Federal income tax return for the Year 1 taxable
year, starting on Date 1 and ending on the last day of Year 1.

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. The period of limitations on assessment under § 6501(a) has
not expired for Year 1 or any subsequent taxable year. Parent has represented that it
does not seek to alter a return position for which an accuracy-related penalty has been
or could have been imposed under § 6662 at the time Parent requested relief and the
new position requires or permits a regulatory election for which relief is requested.

Section 1,1502-75(a)(1) of the Income Tax Regulations provides, in part, that an
affiliated group of corporations which did not file a consolidated return for the
immediately preceding taxable year may file a consolidated return in lieu of separate
returns for the taxable year, provided that each corporation which has been a member
of the group during any part of the taxable year for which the consolidated return is to
be filed consents, in accordance with § 1.1502-75(b) of the regulations, to the
regulations under § 1502. If a group wishes to exercise its privilege of filing a
consolidated return, such consolidated return must be filed not later than the last day
prescribed by law (including extensions of time) for the filing of the common parent’s
return.

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 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).

In this case, the time for filing the Election is fixed by the regulations (i.e., § 1.1502-
PLR-116600-14 3

75(a)(1)). Therefore, the Commissioner has discretionary authority under § 301.9100-3
to grant an extension of time for Parent to file the Election, provided Parent shows 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 Parent, Company Official, and
Tax Professional explain the circumstances that resulted in the failure to timely file the
Election. The information establishes 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).

Based on the facts and information submitted, including the representations made, we
conclude that Parent 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, provided that the Parent Group qualifies
substantively to file a consolidated return for the applicable tax year, we grant an
extension of time, under § 301.9100-3, for thirty (30) days from the date on this letter for
Parent to file the Election (by filing a consolidated return, with Parent as the common
parent, and attaching a Form 1122 for Sub for its Year 1 taxable year). The Parent
Group must attach a copy of this ruling letter to such return, or if the Parent Group files
the return electronically, a statement must be attached to the return that provides the
date and the control number of this ruling letter.

The above extension of time is conditioned on the Parent Group’s tax liability (if any)
being not 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). No opinion is expressed as to the Parent Group’s tax liability for the
years involved. A determination thereof will be made by the applicable Director’s office
upon audit of the Federal income tax returns involved.

We express no opinion with respect to whether, in fact, the Parent Group qualifies
substantively to file a consolidated return. In addition, we express no opinion as to the
tax effects or consequences of filing the return or the Election late under the provisions
of any other section of the Code or regulations, or as to the tax treatment of any
conditions existing at the time of, or effects resulting from, filing the return or 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 statements and
representations made by Parent, Company Official, and Tax Professional. However,
the Director 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.
PLR-116600-14 4

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, copies of this letter are
being sent to your authorized representatives.

                                   Sincerely,


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

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