Professional reliance justified late CNOL carryback election

Plain-English summary

The common parent of a consolidated group missed the deadline to elect an extended carryback period for a consolidated net operating loss. Affidavits showed that the parent had reasonably relied on a qualified tax professional who failed to make or recommend the election, and the parent sought relief before the IRS discovered the omission. The IRS granted 60 days to file the election, subject to substantive eligibility and a condition that aggregate tax liability across the affected years not be lower than if the election had been timely, accounting for the time value of money. The ruling did not extend the refund-claim deadline under section 6511.

Ruling snapshot

• Question: Could the consolidated group receive extra time to elect an extended carryback period for its CNOL?
• Outcome: Approved, conditionally, with 60 days to file the election
• Key authorities: IRC § 172(b)(1)(H); Treas. Reg. §§ 1.1502-21 and 301.9100-3; Rev. Proc. 2009-52

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201532030
Release Date: 8/7/2015

Third Party Communication: None
Date of Communication: Not Applicable

Index Number: 9100.22-00, 1502.21-00

Person To Contact:

Telephone Number:

Refer Reply To:
CC:CORP:B04
PLR-143632-14

Date:
May 07, 2015

Legend

Parent =
Date 1 =
Date 2 =
Date 3 =
X =
Company Official =
Tax Professional =

Dear :

This letter responds to a letter dated September 25, 2014, and supplemental
correspondence, submitted on behalf of Parent, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to file an election. In
particular, Parent is requesting an extension of time for the consolidated group of which

PLR-143632-14 2

Parent is the common parent to elect an extended carryback period (the “Election”) for a
consolidated net operating loss (“CNOL”). 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 in the taxable year ending Date 2 (the “Year 2 CNOL”). Parent
Group seeks to carry back the Year 2 CNOL X years, to its taxable year ending on
Date 1, under § 172(b)(1)(H)(i) of the Internal Revenue Code.

Parent was required to file the Election in order to carry back the Year 2 CNOL to
its taxable year ending on Date 1 and to obtain the benefit of § 56(d)(1)(A)(ii)(I). The
Election was due on Date 3, but for various reasons a valid Election was not filed. 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. Parent has represented that it is not seeking to alter a return
position for which a penalty has been or could be imposed under § 6662 at the time
Parent requested relief and for which the new return position requires or permits a
regulatory election for which relief is requested.

Section 172(b)(1)(A)(i) generally permits a taxpayer to carry back a net operating
loss (“NOL”) to each of the 2 taxable years preceding the taxable year of the NOL.

Section 172(b)(1)(H)(i) permits a taxpayer to elect to carry back an applicable net
operating loss (“applicable NOL”) to each of the 3, 4, or 5 taxable years preceding the
taxable year of the applicable NOL, in lieu of the 2-year period provided by
§ 172(b)(1)(A)(i). Section 172(b)(1)(H)(ii) provides that an “applicable NOL” is the
taxpayer’s NOL for a taxable year ending after December 31, 2007, and beginning
before January 1, 2010.

Section 172(b)(1)(H)(iii) provides that the election under § 172(b)(1)(H) shall be
made by the due date (including extension of time) for filing the return for the taxpayer’s
last taxable year beginning in 2009. The election is irrevocable and, in general, may be
made only with respect to one taxable year.

Section 1502 provides that the Secretary shall prescribe such regulations as he
may deem necessary in order that the tax liability of any affiliated group of corporations
making a consolidated return and of each corporation in the group, both during and after
the period of affiliation, may be returned, determined, computed, assessed, collected,
and adjusted, in such manner as clearly to reflect the income tax liability and the various
factors necessary for the determination of such liability, and in order to prevent
avoidance of such tax liability. In carrying out the preceding sentence, the Secretary
may prescribe rules that are different from the provisions of chapter 1 that would apply if
such corporations filed separate returns.

PLR-143632-14 3

Section 1.1502-21(b) of the Income Tax Regulations provides that losses taken
into account in determining a CNOL may be carried to other taxable years (whether
consolidated or separate) only under paragraph (b) of § 1.1502-21.

Section 1.1502-21(b)(1) provides that NOL carryovers and carrybacks to a
taxable year are determined under the principles of § 172 and § 1.1502-21.

Section 1.1502-21T(b)(3)(v)(A)(1), as in effect for the year at issue, provided that
a consolidated group could elect an extended carryback period pursuant to
§ 172(b)(1)(H) with regard to a CNOL arising in a taxable year ending after December
31, 2007, and beginning before January 1, 2010.

Rev. Proc. 2009-52, 2009-49 I.R.B. 744, provides when and how a taxpayer may
make an election under § 172(b)(1)(H). Section 4.01(2) of Rev. Proc. 2009-52 provides
that the common parent of a consolidated group makes the election for the group.
Sections 4.01(3) and 4.01(4) of Rev. Proc. 2009-52 permit the election to be made for
consolidated taxpayers by attaching a statement to the original or amended
consolidated return for the taxable year of the applicable CNOL, by attaching a
statement to the taxpayer’s amended consolidated return applying the applicable CNOL
to the carryback year, or by attaching a statement to a claim for a tentative carryback
adjustment on Form 1139, Corporation Application for Tentative Refund. Sections
4.01(3)(b) and 4.01(4)(b) of Rev. Proc. 2009-52 require the election, regardless of the
manner in which made, to be filed no later than the due date (including extensions) for
filing the return for the taxpayer’s last taxable year beginning in 2009.

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). 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 election by a consolidated group to extend the carryback period under
§ 172(b)(1)(H) for a CNOL is a regulatory election. Therefore, the Commissioner has
discretionary authority under § 301.9100-3 to grant an extension of time for Parent to
file the Election, provided Parent establishes to the satisfaction of the Commissioner
that 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.

PLR-143632-14 4

Information, affidavits, and representations submitted by Parent, Company
Official, and Tax Professional explain the circumstances that resulted in the failure to
timely file a valid Election. The information establishes that Parent reasonably relied on
a qualified tax professional who 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 affidavits submitted
and the representations made, we conclude that Parent has shown it acted reasonably
and in good faith, that the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied,
and that granting relief will not prejudice the interests of the government. Accordingly,
provided that, and to the extent that, Parent Group qualifies substantively to file the
Election, we grant an extension of time under § 301.9100-3, until sixty (60) days from
the date on this letter, for Parent to file the Election. This letter does not extend the
period of time described in § 6511 by which a taxpayer is required to file a claim for
credit or refund of an overpayment of tax.

Parent may file the Election under § 172(b)(1)(H)(i) to carry back the Year 2
CNOL to its taxable year ending on Date 1 on Form 1120X, Amended U.S. Corporation
Income Tax Return, for the taxable year ending either Date 1 or Date 2, according to the
procedures set forth in Rev. Proc. 2009-52. A copy of this letter must be attached to the
Form 1120X. If Parent files Form 1120X electronically, Parent may satisfy the
requirement of attaching a copy of this letter by attaching a statement to Parent Group’s
amended return that provides the date and control number (PLR-143632-14) of this
letter ruling.

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

Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any item discussed or referenced in this letter. In
particular, we express no opinion with respect to whether Parent qualifies substantively
to make the Election. 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
Internal Revenue Code or regulations, or as to the tax treatment of any conditions
existing at the time of, or resulting from, filing the Election late that are not specifically
set forth in this letter.

PLR-143632-14 5

For purposes of granting relief under § 301.9100-3, we relied on certain
statements and representations made under penalty of perjury by Parent, Company
Official, and Tax Professional. The Director, however, should verify all essential facts.
In addition, notwithstanding that an extension is granted under § 301.9100-3 to file the
Election, any penalties and interest that would otherwise be applicable continue to
apply.

This letter ruling is directed only to the taxpayer who requested it. Section
6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file in 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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