Corporation receives 60 days for a late basis-reduction election

Plain-English summary

A foreign subsidiary transferred stock in another subsidiary to the parent of a consolidated group in a transaction that might have been subject to IRC § 362(e)(2). The parties intended to make the joint election under § 362(e)(2)(C), which shifts the built-in-loss adjustment from the corporation's basis in transferred property to the transferor's basis in stock received, but the election was not timely filed. The IRS found that the parent reasonably relied on a qualified tax professional and sought relief before the IRS discovered the omission. It granted 60 days to file the election in the manner required by Treas. Reg. § 1.362-4(d)(3). Relief was conditioned on the consolidated group's and transferor's aggregate tax liability, including the time value of money, not being lower than if the election had been timely made.

Ruling snapshot

• Question: Could the consolidated-group parent file a late election under IRC § 362(e)(2)(C)?
• Outcome: Approved, with 60 days to file the election and an aggregate-tax-liability condition
• Key authorities: IRC § 362(e)(2)(C); Treas. Reg. §§ 1.362-4(d)(3), 301.9100-1, and 301.9100-3; Notice 2005-70

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201505028 Third Party Communication: None
Release Date: 1/30/2015 Date of Communication: Not Applicable
Index Number: 362.00-00, 362.01-00,
9100.22-00 Person To Contact:
------------------------, ID No. --------------
------------------------ Telephone Number:
--------------------------------- --------------------
----------------------------------- Refer Reply To:
--------------------------------------- CC:CORP:B05
---------------------------------------------------------- PLR-123038-14
Date:
October 20, 2014

Legend

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

FSub 1 = ---------------------------------

Sub 1 = --------------------------------------------------------------------------------
---------------------------

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

Company Official
& Tax Professional = ------------------------

Country A = ------------

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

This letter responds to a letter dated June 10, 2014 requesting an extension of time
under § 301.9100-3 of the Procedure and Administration Regulations to file an election.
Additional information was submitted in a letter dated August 25, 2014. The extension
is being requested in order to allow Taxpayer to file an election under § 362(e)(2)(C) of
the Internal Revenue Code, in the time and manner described in § 1.362-4(d)(3), with
respect to FSub 1’s transfer of its stock in Sub 1 to Taxpayer on Date 1. The material
information is summarized below.

PLR-123038-14 2

Taxpayer is the common parent of a consolidated group. On Date 1, FSub 1, a Country
A corporation, transferred all of its stock in Sub 1 to Taxpayer in a transaction that may
have been subject to § 362(e)(2) and § 1.362-4. FSub 1 was not a controlled foreign
corporation, as defined in § 1.362-4(g)(7), or a controlled foreign partnership, as defined
in § 1.362-4(g)(9), on the date of the transaction, nor was FSub 1 required to file a U.S.
return for the year that included Date 1 (the “Election”).

Taxpayer 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.

Section 362(e)(2)(A) generally provides that if property is transferred to a corporation as
a capital contribution or in an exchange to which § 351 applies and the aggregate basis
of the transferred property would, if not for this provision, exceed its aggregate value
immediately after the transaction, then the transferee corporation's basis in such
property shall not exceed the fair market value of such property.

Under § 362(e)(2)(C), however, the transferor and transferee may make a joint election
to reduce the transferor's basis in the stock received to its fair market value, and no
reduction of the transferee's basis in the property received will be required. Section
362(e)(2)(C) provides that the election shall be made at such time and in such form and
manner as the Secretary may prescribe and, once made, shall be irrevocable.

For transactions after September 3, 2013, the rules for making an election under
§ 362(e)(2)(C) are in § 1.362-4(d)(3). However, taxpayers may apply § 1.362-4 to
transactions occurring after October 22, 2004. Section 1.362-4(j).

Section 1.362-4(d)(3) provides rules for the time and manner of making a section
362(e)(2)(C) election.

Section 1.362-4(d)(3)(ii)(C) provides that if § 1.362-4(d)(3)(ii)(A) (transferors required to
file a U.S. return) and § 1.362-4(d)(3)(ii)(B) (transferors who are controlled foreign
corporations or controlled foreign partnerships and not required to file a U.S. return) do
not apply and if the acquiring corporation is a person required to file a U.S. return for the
year of the transfer, the acquiring corporation must include a Section 362(e)(2)(C)
Statement on or with its timely filed (including extensions) original U.S. return for the
taxable year in which the transfer occurred.

The Election was required to be filed on or with Taxpayer's timely filed income tax return
for the taxable year that included Date 1. For various reasons, however, Taxpayer
failed to file the Election in a timely manner.

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

PLR-123038-14 3

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.

Section 301.9100-1(b) defines the term “regulatory election” as including an election
whose due date is prescribed by a regulation, revenue ruling, revenue procedure,
notice, or announcement. 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. Section 301.9100-3 provides
extensions of time for making regulatory elections that do not meet the requirements of
§ 301.9100-2. 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 time for filing the Election under § 362(e)(2)(C) is fixed by Notice 2005-70 or, if
applicable, § 1.362-4(d)(3)(ii). Therefore, the Commissioner has discretionary authority
under § 301.9100-3 to grant an extension of time for Taxpayer to file the Election,
provided Taxpayer 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
government.

Information, affidavits, and representations submitted by Taxpayer and Company
Official & Tax Professional explain the circumstances that resulted in the failure to
timely file the 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 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 Taxpayer 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, an extension of time is
granted under § 301.9100-3, until 60 days from the date on this letter, for Taxpayer to
file the Election, in the manner described in § 1.362-4(d)(3).

This extension of time is conditioned on the tax liability (if any) of Taxpayer’s
consolidated group and FSub 1 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 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.

PLR-123038-14 4

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction discussed in this letter. Specifically,
no opinion is expressed as to whether the Date 1 transfer was subject to section
362(e)(2) and § 1.362-4. 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
Code or 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 have relied on certain
statements and representations that Taxpayer and Company Official & Tax Professional
made under penalties of perjury. However, the Director should verify all essential facts.
Moreover, notwithstanding that the extension is granted under § 301.9100-3 to file the
Election, any penalties and interest that would otherwise be applicable still apply.

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

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 the return that provides the date and control number of the
letter ruling.

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)