Consolidated group receives time to file late accounting-method forms

Plain-English summary

A corporate parent acquired a subsidiary that used the cash method and needed to change to the accrual method after joining the parent's consolidated group. The consolidated return reflected the accounting-method change and the required section 481(a) adjustment. An extraordinary series of events caused the parent's federal extension request to be filed late, however, so the original Form 3115 was not attached to a timely return and the signed duplicate was not timely sent to the IRS office specified by Revenue Procedure 2011-14. The IRS found that the regulatory-relief requirements were satisfied. It granted 60 days to attach the original Form 3115 to an amended consolidated return and file the signed duplicate, while making clear that it did not extend the return or Form 7004 deadline or decide whether the change otherwise qualified for automatic consent.

Ruling snapshot

• Question: May the parent receive extra time to file the original and duplicate Forms 3115 for its acquired subsidiary's cash-to-accrual method change?
• Outcome: Approved
• Key authorities: IRC §§ 446(e), 448, 481(a); Treas. Reg. §§ 1.446-1(e)(3)(i), 301.9100-1, 301.9100-3; Rev. Proc. 2011-14

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201528031                                            [Third Party Communication:
Release Date: 7/10/2015                                      Date of Communication: Month DD, YYYY]
Index Number: 9100.10-00, 9100.10-01
                                                             Person To Contact:
-----------------------                                      -------------------------
-----------------------------                                ID No. ----------------
-------------------                                          Telephone Number:
---------------------------------------                      --------------------
------------------------------                               Refer Reply To:
                                                             CC:ITA:B07
                                                             PLR-140190-14
                                                             Date:
                                                             March 18, 2015


LEGEND

  Parent     = --------------------------------------------------
  S1         = ------------------------------------------------------------------
  C          = ---------------
  Date1      = ---------------------
  Date2      = --------------------------
  Date3      = --------------------------
  Date4      = --------------------
  Date5      = ---------------------------
  Date6      = --------------------
  Date7      = --------------------
  Date8      = --------------------


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

         This ruling responds to a letter dated September 10, 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 original and the signed duplicate copy of the original of the Form 3115, Application
  for Change in Accounting Method, for S1. Parent should have filed the original and
  copy of the original 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 and ending Date2
  (year of change).

  FACTS

           Parent represents the facts are as follows:
PLR-140190-14                               2


        Parent files a consolidated federal income tax return that includes various
subsidiaries on a calendar year basis. Parent uses an overall accrual method of
accounting. Parent acquired S1 on Date3. S1 filed its own separate return for its
taxable year ended Date3. Prior to its acquisition by Parent, S1 operated on a
calendar year basis and used the cash receipts and disbursements method of
accounting. As of Date1, S1 became part of Parent’s consolidated group and, as
such, needed to change to an accrual method of accounting as required by § 448 of
the Internal Revenue Code. Thus, in accord with the procedures of Rev. Proc. 2011-
14, Parent should have completed the required original of the Form 3115, reflecting
the desired accounting method change, and attached the original to Parent’s, timely
filed, consolidated federal income tax return for the taxable year ending Date2.
Further, in accord with the procedures of Rev. Proc. 2011-14, a copy of the original of
the Form 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 for the taxable year
ending Date2, should have reflected the accounting method change made by S1.

       Parent’s consolidated federal income tax return for the taxable year ending
Date2 was due on Date4, without extensions. Parent could not file its consolidated
federal income tax return for the taxable year ending Date2 by Date4, so it intended to
request an extension of time to file its consolidated federal income tax return to Date5.
Parent engaged C to prepare its federal and state income tax returns and any
requests for extensions for the taxable year ending Date2. Parent gave C all of the
relevant information necessary to correctly and timely file Parent’s federal and state
extensions for the taxable year ending Date2. On, Date6, Parent timely paid the tax it
owed on extension for its federal and state income tax returns for the taxable year
ending Date2. Also, on Date6, Parent timely filed extensions for its state tax returns.
However, due to an extraordinary series of events, Parent failed to timely file Form
7004, Application for Automatic Extension of Time to File Certain Business Income
Tax, Information, and Other Returns, for the taxable year ending Date2 to extend the
due date for its federal tax return.

        On, Date7, C became aware that Parent’s Form 7004 had not been timely filed.
Parent was unaware that its Form 7004 had not been filed until it was notified by C.
On Date8, C submitted Parent’s Form 7004 for the taxable year ending Date2 to the
Internal Revenue Service (IRS) and received a confirmation that it had been accepted
by the IRS. Parent represents that the consolidated federal income tax return it filed
for the taxable year beginning Date1, fully reflects the accounting method change
made by S1, including the necessary adjustment under § 481(a).

       Because of Parent’s failure to timely file Form 7004 for the taxable year ending
Date2, it has failed to attach an original Form 3115 to a timely filed federal income tax
return for the taxable year ended Date2. Parent has also not timely filed a signed
PLR-140190-14                               3


duplicate copy of its Form 3115 with the IRS National Office as required by Sec.
6.02(3)(a) of Rev. Proc. 2011-14.

RULING REQUESTED

         Parent requests an extension of time pursuant to §§ 301.9100-1 and 301.9100-
3 to file the original and the signed duplicate copy of the original of the Form 3115 that
are required by Rev. Proc. 2011-14 for S1 to obtain the Commissioner’s permission to
change from the cash receipts and disbursements method of accounting to an accrual
method of accounting for the taxable year ending Date2.

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 IRS 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.
PLR-140190-14                              4


        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 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 original of the Form 3115 changing S1 from the cash receipts
       and disbursements method of accounting to an accrual method of accounting
       for the taxable year ending Date2, with an amended consolidated federal
       income tax return, and

   (2) file the duplicate copy (with signature) of the Form 3115 with the appropriate
       office of the IRS.

       Please attach a copy of this letter ruling to the amended return and to the
duplicate copy of the 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 change S1 has made is eligible to be made under Rev. Proc.
2011-14 or (2) S1 otherwise meets the requirements of Rev. Proc. 2011-14 to make
its accounting method change using Rev. Proc. 2011-14. 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 Date2.

       The ruling contained in this letter ruling is based upon facts and representations
submitted by Parent with an accompanying penalty of perjury statement executed by
the appropriate party. 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 Form 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-140190-14                              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 Associated Chief Counsel
                                                Income Tax & Accounting