Three late accounting-method forms treated as timely

Plain-English summary

A foreign corporate parent intended to extend the filing deadline for its federal income tax return, but a former employee apparently failed to file Form 7004. The company later filed its return with three Forms 3115 for automatic changes involving cooperative advertising, intangibles, and rebates and allowances. Copies of those forms had been timely sent to the IRS National Office, but the originals were attached to a return that was not timely because the extension was missing. The IRS found unusual and compelling circumstances, accepted that the company had acted reasonably and in good faith, and concluded that relief would not prejudice the government. It granted an extension and treated all three Forms 3115 as timely filed.

Ruling snapshot

• Question: Could the originals of three Forms 3115 attached to a late return be treated as timely filed?
• Outcome: Approved, all three accounting-method applications were treated as timely
• Key authorities: IRC §§ 446(e), 481(a); Treas. Reg. §§ 1.446-1(e), 301.9100-1 through 301.9100-3; Rev. Proc. 2011-14

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201539003 Third Party Communication: None
Release Date: 9/25/2015 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
--------------------------------------- ----------------------, ID No. ------------------
------------------------------------ Telephone Number:
----------------------------------- ----------------------
Refer Reply To:
In Re: ----------------- [CC:ITA:2]
PLR-103186-15
PLR-103191-15
PLR-103193-15

                                                           Date: June 9, 2015

Legend:

Taxpayer -----------------------------------------

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

    This is in response to a recent letter requesting certain extensions of time for

Taxpayer. Specifically, Taxpayer requests extensions to file the original copies of three
(3) separate Forms 3115 (dealing with three (3) separate automatic accounting method
changes) with Taxpayer’s 2012 U. S. Federal income tax return. This is required so that
all three (3) automatic method change requests will be treated as timely made for the
taxable year ended December 31, 20----.

  The requests are based on sections 301.9100-1 and 301.9100-3 of the

Procedure and Administration Regulations.

                                                 FACTS

     Taxpayer is the corporate parent of a multinational group of companies.

Taxpayer files Form 1120–F, U.S. Income Tax Return of a Foreign Corporation, on a
calendar year basis. The un-extended due date for Taxpayer’s 20---- Form 1120-F was
March 15, 2013. However, because Taxpayer did not have all required information
necessary to file a complete and accurate 20---- Form 1120-F by March 15, 2013, the
taxpayer internally prepared Form 7004, Application for Automatic Extension of Time to
File Certain Business Income Tax Information, and Other Returns. Taxpayer intended
to file the Form 7004 for the 20---- tax year on or before March 15, 2013.
PLR-103186-15 2

     Taxpayer mailed Form 1120-F for the 20----tax year to the IRS on September 13

2013. This 20----Form 1120-F was mailed prior to the date that Taxpayer believed to be
      the filing deadline, assuming that Form 7004 had been timely filed (providing taxpayer
      with an automatic 6 month extension of time to file its 20---- Form 1120-F).

      However, due to an oversight by a former employee of Taxpayer who was
      responsible for filing the extension (and for ensuring Taxpayer met all of its 20---- filing
      requirements), the Form 7004 was apparently not filed with the IRS for the 20---- tax
      year. This former employee did not alert Taxpayer to any such problem prior to his
      departure from Taxpayer.

       When Taxpayer later received notification from the IRS indicating Taxpayer had
      

      not timely filed Form 5472, Information Return of a 25% Foreign-Owned U.S.
      Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, for the tax
      year ended December 31, 20----, Taxpayer promptly contacted the former employee.
      Taxpayer sought verification from the former employee that the 20----Form 7004 had
      been timely filed. The former employee stated that he could not specifically recollect
      filing the Form 7004. The IRS has no record of receiving Taxpayer’s 20---- Form 7004.
      Nevertheless, Taxpayer's intention to request an automatic extension to file its 2012
      income tax return is evidenced by the fact that Taxpayer made an extension payment
      on March 13, 2013.

      Taxpayer attached three (3) Forms 3115, Application for Change in Accounting
      Method, to its 2012 Form 1120-F, mailed on September 13 2013. These Forms 3115
      requested the following three (3) automatic method changes:

      1. Automatic change number 46, entitled “Cooperative Advertising,” discussed at
         section 19.05 of the Appendix of Rev. Proc. 2011–14.
      2. Automatic change number 78, entitled “Intangibles,” discussed at section 10.05
         of the Appendix of Rev. Proc. 2011–14.

      3. Automatic change number 135, entitled “Rebates and Allowances,” discussed at
         section 19.07 of the Appendix of Rev. Proc. 2011–14.

         Section 6.02(3) of Rev. Proc. 2011–14 requires a taxpayer making a change
         under the automatic consent procedures to complete and file an application on Form
         3115 in duplicate. The original Form 3115 must be attached to the taxpayer’s timely
         filed (including extensions) original federal income tax return for the year of change. A
         copy of the From 3115 application must be filed with the IRS National Office or with the
         Ogden, Utah office, as appropriate, no earlier than the 1st 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.

      As explained above, given that one of Taxpayer’s prior employees failed to file
      Form 7004, the original three (3) Form 3115s listed above were not attached to a timely
      PLR-103186-15 3

filed original federal income tax return for the year of change (although copies of the
three (3) Forms 3115 were timely filed with the IRS National Office on January 25,
2013).

   Accordingly, Taxpayer now requests relief under section 301.9100-3 to obtain

extensions of time with respect to its filing requirements for the three (3) Forms 3115 at
issue. More specifically, Taxpayer has requested that the Forms 3115 that were
previously filed by Taxpayer now be considered as timely filed by the IRS.

    The examining agent does not object to the granting of Taxpayer’s request that

the Forms 3115 that were previously filed by Taxpayer now be considered as timely
filed by the IRS.

                                LAW & ANALYSIS

    Section 446(d) of the Internal Revenue Code and section 1.446–1(e)(2)(i) of the

Income Tax Regulations require a taxpayer to obtain the consent of the Commissioner
before changing a method of accounting for Federal income tax purposes. To obtain the
Commissioner's consent, section 1.446–1(e)(3)(i) generally requires a taxpayer to timely
file a Form 3115. Rev. Proc. 2011–14 provides procedures by which a taxpayer may
obtain the automatic consent of the Commissioner for specified changes in methods of
accounting under section 446(e).

     Section 6.02(3) of Rev. Proc. 2011–14 requires a taxpayer making a change

under the automatic consent procedures to complete and file an application on Form
3115 in duplicate. The original Form 3115 must be attached to the taxpayer’s timely
filed (including extensions) original federal income tax return for the year of change. A
copy of the From 3115 application must be filed with the IRS National Office or with the
Ogden, Utah office, as appropriate, no earlier than the 1st 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.

   Sections 301.9100-1 through 301.9100-3 provide the standards the

Commissioner uses to determine whether to grant an extension of time to make a
regulatory election.

  Section 301.9100-1(b) defines the term “regulatory election” as an election

whose due date is prescribed by a regulation published in the Federal Register, or a
revenue ruling, revenue procedure, notice or announcement published in the Internal
Revenue Bulletin.

  Section 301.9100-1(c) provides that the Commissioner may grant a reasonable

extension of time to make a regulatory election, or a statutory election (but no more than
PLR-103186-15 4

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.

  In this case, Taxpayer has represented that Taxpayer is not foreclosed from

being granted an extension of time under section 9100 of the Regulations on Procedure
and Administration based on any condition contained in section 301.9100-1.

   Section 301.9100-3(a) provides that requests for extensions of time for regulatory

elections 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(b)(1) provides that a taxpayer will be deemed to have acted

reasonably and in good faith if the taxpayer--

         (i) requests relief before the failure to make the regulatory election is
         discovered by the Service;

         (ii) inadvertently failed to make the election because of intervening events
         beyond the taxpayer's control;

         (iii) failed to make the election because, after exercising due diligence, the
         taxpayer was unaware of the necessity for the election;

         (iv) reasonably relied on the written advice of the Service; or

         (v) reasonably relied on a qualified tax professional, and the tax
         professional failed to make, or advise Taxpayer to make the election.

   In this case, Taxpayer has represented that Taxpayer acted reasonably and in

good faith because Taxpayer requested relief before the failure to make the regulatory
election was discovered by the Service. Thus, Taxpayer is not foreclosed from being
granted an extension of time under section 9100 of the Regulations on Procedure and
Administration based on section 301.9100-3(b)(1).

  Under section 301.9100-3(b)(3), a taxpayer will not be considered to have acted

reasonably and in good faith if Taxpayer --

  (i) seeks to alter a return position for which an accuracy-related penalty has been
  or could be imposed under section 6662 at the time Taxpayer requests relief
  (taking into account any qualified amended return filed within the meaning of §
  1.6664-2(c)(3)) and the new position requires a regulatory election for which
  relief is requested;

PLR-103186-15 5

   (ii) was informed in all material respects of the required election and related tax
   consequences, but chose not to file the election; or

   (iii) uses hindsight in requesting relief. If specific facts have changed since the
   original deadline that make the election advantageous to a taxpayer, the Service
   will not ordinarily grant relief.

   In this case, Taxpayer has represented that none of the factors set forth in

section 301.9100-3(b)(3) above apply. Thus, Taxpayer is not foreclosed from being
considered to have acted reasonably and in good faith by any of the conditions
contained section 301.9100-3(b)(3).

    Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable

extension of time to make a regulatory election only when the interests of the
Government will not be deemed to be prejudiced by the granting of relief. Under
paragraph (c)(1)(i), the interests of the government are deemed to be prejudiced if
granting relief would result in a taxpayer having a lower tax liability in the aggregate for
all taxable years affected by the election than the taxpayer would have had if the
election had been timely made (taking into account the time value of money). Under
paragraph (c)(1)(ii), the interests of the government are ordinarily prejudiced if the
taxable year in which the regulatory election should have been made is closed by the
period of limitations on assessment under section 6501(a) before the taxpayer's receipt
of a ruling granting relief under this section. Paragraph (c)(1)(ii) provides that the IRS
may condition a grant of relief on the taxpayer providing the IRS with a statement from
an independent auditor certifying that the interests of the government are not
prejudiced.

  In this case, Taxpayer has represented that Taxpayer is not foreclosed from relief

by any of the conditions contained section 301.9100-3(c)(1).

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

elections. This section provides, in relevant part, that the interests of the government
are deemed to be prejudiced by granting an extension of time except in unusual and
compelling circumstances if the accounting method regulatory election for which relief is
requested is subject to the procedure described in section 1.446-1(e)(3)(i) (requiring the
advance written consent of the Commissioner) or if the accounting method regulatory
election for which relief is requested requires an adjustment under section 481(a). See
also section 6.02(3)(d)(ii) of Rev. Proc. 2011–14.

   Taxpayer has represented that there are unusual and compelling circumstances

warranting relief. Taxpayer has historically timely filed its income tax returns.
Taxpayer’s failure to do so in this instance was the result of an inadvertent error by one
of Taxpayer’s former employees. It was not a deliberate disregard for the filing
deadline.
PLR-103186-15 6

CONCLUSION

   Based solely on the facts and representations submitted, the Commissioner

consents to an extension of time for Taxpayer to file the original copies of Forms 3115
(as discussed in detail above) with its 20---- United States Federal income tax return.
Therefore, the Forms 3115 that were previously filed by Taxpayer will now be
considered as timely filed by the IRS. A copy of this letter should be associated with the
Forms 3115 that accompanied taxpayer's Federal tax return filed for the taxable year
ended December 31, 20----.

   Except as expressly provided herein, no opinion is expressed or implied

concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

    This ruling is directed only to Taxpayer. 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 their return that provides the date and control
number of the letter ruling.

    The rulings contained in this letter are based upon information and

representations submitted by Taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of
the material submitted, it is subject to verification by the Tax Court or by any party with
jurisdiction over the matter within the Internal Revenue Service.

                                      Sincerely,



                                      __________________________
                                      Thomas D. Moffitt
                                      Chief, Branch 2
                                      (Income Tax & Accounting)