Professional error justified late CNOL carryback waiver

Plain-English summary

A consolidated group intended to waive the entire carryback period for a consolidated net operating loss but failed to file a valid election with its return. The parent represented that the group had not carried back, and would not carry back, any of the loss, and that no member had a separate return year during the carryback period. The IRS found that the parent had reasonably relied on a qualified tax professional and had requested relief before the IRS discovered the failure. It gave the parent 60 days to file the election and required the group’s returns to be amended to attach it. Relief was conditioned 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 make a late election to waive the entire carryback period for its consolidated net operating loss?
• Outcome: Approved for 60 days, subject to the aggregate-tax-liability condition
• Key authorities: IRC § 172(b)(3); Treas. Reg. §§ 1.1502-21(b)(3)(i), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201532004 Third Party Communication: None
Release Date: 8/7/2015 Date of Communication: Not Applicable
Index Number: 9100.22-00, 1502.21-00,
172.01-00 Person To Contact:
------------------------, ID No. -----------------
--------------------- Telephone Number:
------------------------------------ ---------------------
--------------------------------- Refer Reply To:
------------------ CC:CORP:B01
--------------------------- PLR-104981-15
Date:
April 30, 2015

LEGEND

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

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

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

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

This is in response to a letter dated January 30, 2015, submitted on behalf of Parent,
requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the
Procedure and Administration Regulations to file an election. The extension is being
requested for Parent to file an election under § 1.1502-21(b)(3)(i) to relinquish the entire
carryback period for the Parent consolidated group’s consolidated net operating losses
(“CNOLs”) for the tax year ending Date 1 (the “Election”). Additional information was
submitted in a letter dated March 19, 2015. The material information submitted for
consideration is summarized below.

Parent is the common parent of a consolidated group (“Parent Group”). Parent Group
incurred a CNOL for the tax year ending Date 1. Parent has represented that Parent
Group has not, and will not, carry back any portion of the CNOL to a prior consolidated
return year of Parent Group. Parent has also represented that no member of Parent
PLR-104981-15 2

Group for the tax year ending Date 1 had a separate return year, within the meaning of
§ 1.1502-1(e), at any time during the carryback period.

Parent has also represented that Parent Group is not seeking to alter a return position
for which an accuracy-related penalty has been or could be imposed under § 6662.

Parent intended to file the Election. The Election was required to be filed by the due
date for Parent Group’s consolidated return for the tax year ending Date 1, but for
various reasons, Parent failed to file a valid Election. The period of limitations on
assessment under § 6501(a) has not expired for Parent Group’s tax year ending Date 1
or any subsequent taxable year.

Section 1.1502-21(b)(3)(i) provides that a consolidated group may make an irrevocable
election under § 172(b)(3) to relinquish the entire carryback period with respect to a
CNOL for any consolidated return year. The election is made in a separate statement
entitled “THIS IS AN ELECTION UNDER § 1.1502-21(b)(3)(i) TO WAIVE THE ENTIRE
CARRYBACK PERIOD PURSUANT TO SECTION 172(b)(3) FOR THE [insert
consolidated return year] CNOLs OF THE CONSOLIDATED GROUP OF WHICH [insert
name and employer identification number of common parent] IS THE COMMON
PARENT.” Section 1.1502-21(b)(3)(i) also provides that the statement must be filed with
the group’s income tax return for the consolidated return year in which the loss arises.

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-
21(b)(3)(i)). Therefore, the Commissioner has discretionary authority under § 301.9100-
1 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 and Company Official
explain the circumstances that resulted in the failure to timely file the Election. The
information establishes that Parent reasonably relied on a qualified tax professional who
PLR-104981-15 3

failed to make, or advise Parent 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 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, an extension of time is granted under
§ 301.9100-1, until 60 days from the date on this letter, for Parent to file the Election
with respect to the relinquishment of the entire carryback period for the CNOL for the
tax year ending Date 1, as described above.

The above extension of time is conditioned on the taxpayers’ (Parent’s and the
members of its consolidated group) 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 taxpayers’ 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.

Parent should file the Election in accordance with § 1.1502-21(b)(3)(i). Parent Group’s
returns must be amended to attach the Election statement required by § 1.1502-
21(b)(3)(i). A copy of this letter should be attached to the Election statement.
Alternatively, if Parent Group files its returns electronically, Parent may satisfy this latter
requirement by attaching a statement to its return that provides the date and control
number of this letter ruling.

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 § 301.9100-1, we relied on certain statements and
representations made by Parent and Company Official. However, the Director should
verify all essential facts. Moreover, notwithstanding that an extension is granted under
§ 301.9100-1 to file the Election, penalties and interest that would otherwise be
applicable, if any, still apply.
PLR-104981-15 4

This 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.

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
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel (Corporate)

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