Late Forms 3115 allowed after missed return extension

Plain-English summary

A consolidated group's subsidiary changed two LIFO inventory submethods and one capitalization method under IRC § 263A. The parent intended to extend its consolidated return but failed to file Form 7004, even though it made an electronic payment marked for the extension and obtained multiple state and local extensions. The late consolidated return made the subsidiary's attached Forms 3115 and their duplicate copies late as well. After learning of the omission from an IRS notice, the parent promptly requested relief. The IRS gave it 60 days to file the original Forms 3115 with an amended consolidated return and signed duplicate copies with the appropriate IRS office. The ruling did not extend the return deadline or decide whether the accounting-method changes qualified for automatic consent.

Ruling snapshot

• Question: Could the parent receive extra time to file Forms 3115 for its subsidiary's inventory and cost-method changes?
• Outcome: Approved, with 60 days to file the originals and signed duplicate copies
• Key authorities: IRC §§ 263A, 446(e), 472, and 481(a); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Rev. Proc. 2011-14

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201507007 Third Party Communication: None
Release Date: 2/13/2015 Date of Communication: Not Applicable
Index Numbers: 9100.10-00, 9100.10-01
Person To Contact:
----------------------------------------------------------- -----------------------, ID No. -------------
------------------------------------- Telephone Number:
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-------------- Refer Reply To:
-------------------------------- CC:ITA:6
PLR-121501-14
Date:
November 03, 2014

LEGEND

Parent = ------------------------------------------------------------------------
-
S1 = ------------------------------------------------------------------------
-
Date1 = ----------------------
Date2 = ----------------------
Date3 = ----------------------------

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

   This ruling responds to a letter dated May 20, 2014, submitted by Parent on

behalf of its subsidiary, S1. Parent is requesting an extension of time pursuant to
§§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to file
the originals and the signed, duplicate copies of these originals of the Forms 3115,
Application for Change in Accounting Method, for S1. Parent should have filed these
originals and copies of these originals pursuant to section 6.02(3)(a) of Rev. Proc.
2011-14, 2011-4 I.R.B. 330, 346, on behalf of S1 for the taxable year beginning Date1.

FACTS

     Parent represents the facts are as follows:

    Parent files a consolidated federal income tax return on a calendar year basis

that includes various subsidiaries. One of these subsidiaries, S1, wanted to change two
of its LIFO (Last-in, First-out) inventory sub-methods under § 472 of the Internal
Revenue Code and one cost method under § 263A for its taxable year beginning Date1.
Parent believes that both LIFO inventory sub-methods and the cost method accounting

PLR-121501-14 2

changes could be implemented under Rev. Proc. 2011-14. Thus, in accord with the
procedures of Rev. Proc. 2011-14, Parent should have completed the required originals
of the Forms 3115, reflecting the three desired accounting method changes, and
attached these originals to Parent’s, timely filed, consolidated federal income tax return
that was to be filed for the taxable year beginning Date1. Further, in accord with the
procedures of Rev. Proc. 2011-14, copies of these originals of the Forms 3115, with an
original signature or a photocopy of the original signature, should have been timely filed
with the appropriate office of the Internal Revenue Service. Lastly, Parent’s
consolidated federal income tax return that was to be filed for the taxable year
beginning Date1, should have reflected the three accounting method changes made by
S1.

    Parent’s consolidated federal income tax return that was to have been filed for

the taxable year beginning Date1 was due on Date2, without extension. Parent could
not file its consolidated federal income tax return for the taxable year beginning Date1
by Date2, so it intended to request an extension of the Date2, due date to Date3.
However, due to an extraordinary series of events, Parent failed to file timely Form
7004, Application for Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns, for the taxable year beginning Date1. In fact, Parent
never filed its Form 7004. As a result, when Parent did file its consolidated federal
income tax return for the taxable year beginning Date1, on or before Date3, the return
was late. This late filing of its return made the originals and the signed, duplicate copies
of these originals of the Forms 3115, which Parent was filing on behalf of S1, late.

    Parent has received a receipt from the Government showing that it had timely

filed an electronic federal tax payment on or before Date2, that is associated with the
consolidated federal income tax return Parent would file for the taxable year beginning
Date1. Noted on this receipt was that the payment was associated with an “Extension –
Form 7004.” Further, Parent has indicated that it had properly filed for numerous state
and municipality tax extensions for the taxable year beginning Date1. Lastly, Parent
represents that it did timely file a Form 1042, Annual Withholding Tax Return for U.S.
Source Income of Foreign Persons, for the taxable year beginning Date1. Parent
represents that the consolidated federal income tax return that it did file for the taxable
year beginning Date1, does reflect the three accounting method changes made by S1.

    Parent was unaware that its Form 7004 had not been filed until it recently

received a notice from the Service regarding the late filing of Forms 5472, Information
Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in
a U.S. Trade or Business. This notice stated that because no Form 7004 had been
filed, Parent’s consolidated federal income tax return for the taxable year beginning
Date1, was late, and thus, the Forms 5472 that had been filed with it were also late.
Parent, upon receiving this notice, promptly filed this request to obtain an extension of
time pursuant to §§ 301.9100-1 and 301.9100-3 for S1’s Forms 3115.

PLR-121501-14 3

RULING REQUESTED

     Parent requests an extension of time pursuant to §§ 301.9100-1 and 301.9100-3

to file the originals and the signed, duplicate, copies of these originals of the Forms
3115 that are required by Rev. Proc. 2011-14 for S1 to obtain the Commissioner’s
permission to change its accounting methods for its LIFO inventory method and its
§ 263A cost method for the taxable year ending Date1.

LAW AND ANALYSIS

    Rev. Proc. 2011-14 provides the procedures by which a taxpayer may obtain

automatic consent to change certain accounting methods. A taxpayer complying with
all the applicable provisions of this revenue procedure has obtained the consent of the
Commissioner to change its accounting method under § 446(e) and the Income Tax
Regulations thereunder.

    Section 6.02(3)(a) of Rev. Proc. 2011-14 provides that a taxpayer changing an

accounting method pursuant to Rev. Proc. 2011-14 must complete and file a Form 3115
in duplicate. The original must be attached to the taxpayer’s timely filed (including any
extensions) original federal income tax return for the year of change, and a copy (with
signature) of the Form 3115 must be filed with the appropriate office of the Service no
earlier than the first day of the year of change and no later than when the original is filed
with the federal income tax return for the year of change.

  Section 301.9100-1(c) provides that the Commissioner has discretion to grant a

reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
to make certain regulatory elections.

   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 an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2.

    Section 301.9100-3(a) provides that requests for relief subject to § 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 the
granting of relief will not prejudice the interests of the Government.

   Section 301.9100-3(c)(2) imposes special rules for accounting method regulatory

elections. This section provides, in relevant part, that the interests of the Government

PLR-121501-14 4

are deemed to be prejudiced except in unusual and compelling circumstances when the
accounting method regulatory election for which relief is requested is subject to the
procedure described in § 1.446-1(e)(3)(i) or the relief requires an adjustment under
§ 481(a) (or would require an adjustment under § 481(a) if the taxpayer changed to the
accounting method for which relief is requested in a taxable year subsequent to the
taxable year the election should have been made).

CONCLUSION

   Based solely on the facts and representations submitted, this office concludes

that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
Accordingly, Parent is granted 60 calendar days from the date of this letter to:

(1) file the required originals of the Forms 3115 changing S1’s LIFO inventory
method and its § 263A cost method for the taxable year ending Date1, with an
amended consolidated federal income tax return, and
(2) file the duplicate copies (with signatures) of the Forms 3115 with the appropriate
office of the Service.

Please attach a copy of this letter ruling to the amended return and to each duplicate
copy of Form 3115.

   Except as expressly set forth above, we express no opinion concerning the tax

consequences of the facts described above under any other provision of the Code or
regulations. Specifically, no opinion is expressed or implied concerning whether (1) the
accounting method changes S1 has made are eligible to be made under Rev. Proc.
2011-14 or (2) S1 otherwise meets the requirements of Rev. Proc. 2011-14 to make
accounting method changes using Rev. Proc. 2011-14. Further, no opinion is
expressed regarding the correctness of S1’s inventory or capitalization of cost
methods. Lastly, we emphasize that this letter ruling does not grant any extension of
time for the filing of Parent’s Form 7004 or its consolidated federal income tax return for
the taxable year ending Date1.

  The ruling contained in this letter ruling is based upon facts and representations

submitted by Parent with accompanying penalty of perjury statements executed by
appropriate parties. While this office has not verified any of the material submitted in
support of this request for an extension of time to file the required Forms 3115, all
material is subject to verification on examination.

  This ruling is directed only to Parent, who requested it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

PLR-121501-14                                5




        In accordance with the power of attorney, we are sending copies of this letter
ruling to Parent’s authorized representatives.


                                      Sincerely,



                                      Cheryl L. Oseekey
                                      Senior Counsel, Branch 6
                                      Office of Associate Chief Counsel
                                      (Income Tax & Accounting)

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