Consolidated group receives late intercompany regulation election

Plain-English summary

A consolidated group had deferred gain from a pre-1995 distribution of foreign subsidiary stock. It failed to make the election that would apply the revised intercompany transaction regulations to that stock elimination transaction because it reasonably relied on a tax professional who did not make or recommend the election. The group requested relief before the IRS discovered the omission and represented that no other deferred intercompany stock gain or loss was involved. The IRS granted 90 days to attach the election to an amended return for the period containing July 12, 1995. 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: Whether the consolidated group could make a late election to apply revised intercompany transaction regulations
• Outcome: Approved, with 90 days to file the election on an amended return
• Key authorities: Treas. Reg. §§ 1.1502-13(l)(3), 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                  Washington, DC 20224

Number: 201540001                                                 Third Party Communication: None
Release Date: 10/2/2015                                           Date of Communication: Not Applicable
Index Number: 9100.22-00, 1502.13-00
                                                                  Person To Contact:
--------------------------                                        -------------------, ID No. ----------------
--------------------------                                        Telephone Number:
-------------------------------                                   ----------------------
-----------------------                                           Refer Reply To:
---------------------------------                                 CC:CORP:B03
                                                                  PLR-100479-15
                                                                  Date:
                                                                  July 06, 2015




Legend

Parent                              =         -------------------------------
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Sub 1                               =         -----------------------------------------------------------------------
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Sub 2                               =         --------------------------------------------
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Old Foreign Sub 1                   =         ------------------------------------
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Year End                            =        ------------------

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

a                                   =        --------------
PLR-100479-15                                             2

Company Official                    =         -----------------
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Tax Professionals                   =         --------------
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                                              -----------------------------------
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Dear -------------:

       This letter is in response to your authorized representative’s letter dated
December 23, 2014, requesting an extension of time under §§ 301.9100-1 through
301.9100-3 of the Procedure and Administration Regulations to file an election under
§ 1.1502-13(l)(3) of the Income Tax Regulations (hereinafter referred to as the
“Election”). Additional information was received in letters dated May 7, 2015 and May,
27, 2015. The material information submitted is summarized below.

       Parent is the common parent of a consolidated group that has a taxable year
ending Year End (the “Parent Group”). Parent owns all of the stock of Sub 1 and Sub 2,
both of which are members of Parent Group. Sub 1 is a holding company for the
worldwide operations of Parent Group. Sub 1 owned all of the stock of Old Foreign Sub
1.

       On Date 1, which was prior to the Parent Group’s first taxable year beginning on
or after July 12, 1995, Sub 1 distributed the stock of Old Foreign Sub 1 to Parent (the
“Old Foreign Sub 1 Distribution”). Sub 1 realized $a of gain on the Old Foreign Sub 1
Distribution, all of which was deferred under § 1.1502-13.

      In July 1995, the Internal Revenue Service and Treasury Department published
new intercompany transaction regulations under § 1.1502-13 governing the treatment of
transactions between members of a consolidated group. The regulations were
generally effective for transactions occurring in taxable years beginning on or after July
12, 1995. See § 1.1502-13(l)(1).

       Section 1.1502-13(l)(3) of the regulations permitted taxpayers to elect to have the
new regulations apply to stock elimination transactions (i.e., those transactions
described in § 1.1502-13(l)(3)(ii)) to which prior law would otherwise apply. To make
the Election under § 1.1502-13(l)(3), taxpayers were required to include a statement
making the Election with their timely filed original return (including extensions) for the
taxable year including July 12, 1995.

    Parent has represented that except for the Old Foreign Sub 1 Distribution, no
member of the Parent Group had any deferred stock gain or loss from an intercompany
PLR-100479-15                                3

transaction at any time during or prior to the taxable year that included July 12, 1995,
that was not taken into account prior to July 12, 1995. Parent has also represented
that it is not seeking to alter a return position for which an accuracy related penalty has
been or could be imposed under § 6662 at the time of its request (taking into account
any qualified amended return filed within the meaning of § 1.6664-2(c)(3)) and for which
the new return position requires or permits a regulatory election for which relief is
requested.

      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
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. See § 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. See § 301.9100-3(a).

      In this case, the time for filing the Election is fixed by the regulations (i.e.,
§ 1.1502-13(l)(3)). Therefore, the Commissioner has discretionary authority under
§ 301.9100-3 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, Company
Official, and Tax Professionals 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 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 § 301.9100-3, until 90 days from the date on this letter, for Parent to file the
Election. The election must be attached to an amended return for the period including
July 12, 1995.

         The above extension of time is conditioned on Parent Group’s consolidated 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 filed (taking into account
PLR-100479-15                                  4

the time value of money). We express no opinion as to the taxpayer’s tax liability for the
years involved. A determination thereof will be made by the applicable Director’s office
upon audit of the Federal income tax returns involved.

       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. In particular, we express no opinion with respect to whether
Parent Group qualifies substantively to make the Election.

       In addition, we express no opinion as to the tax consequences of filing the
Election late under the provisions of any other section of the Code and 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 the above ruling.

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

      This letter is directed only to the taxpayer who requested it. Section 6110(k)(3)
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 this letter ruling.

       Pursuant to the power of attorney on file in this office, a copy of this letter is being
sent to your authorized representative.

                                        Sincerely,


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




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