Consolidated group receives late stock loss election relief

Plain-English summary

A corporation in a consolidated group merged into its parent when its liabilities exceeded the value of its assets, causing the parent to recognize a loss on the subsidiary's stock. The group did not timely file the statement required by regulation section 1.337(d)-2(c) to claim the portion of the loss not attributable to built-in gain. The IRS found that the group acted reasonably and in good faith because it relied on a qualified tax professional who failed to make or recommend the election. It granted 60 days to file the statement. Relief is conditioned on the group's aggregate tax liability not being lower than it would have been with a timely election, taking the time value of money into account. The ruling does not extend the section 6511 refund-claim deadline or decide whether the taxpayer substantively qualifies for the election.

Ruling snapshot

• Question: May the consolidated group file the section 1.337(d)-2(c) loss statement after its original deadline?
• Outcome: Yes, within 60 days and subject to the aggregate-tax-liability condition.
• Key authorities: Treas. Reg. §§ 1.337(d)-2(c), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                         Department of the Treasury
                                                                 Washington, DC 20224

Number: 201606017                                                Third Party Communication: None
Release Date: 2/5/2016                                           Date of Communication: Not Applicable
Index Number: 337.13-00, 337.16-00,
              9100.29-00                                         Person To Contact:
                                                                 ----------------------, ID No. ----------------
-----------------                                                Telephone Number:
-----------------------------                                    --------------------
--------------------------------------------                     Refer Reply To:
------------------                                               CC:CORP:B03
-----------------------------------------------------            PLR-128260-15
                                                                 Date:
                                                                 October 29, 2015




LEGEND:


Taxpayer                    =         ----------------------------------------------
------------------------------------------------------------

Corp1                       =        -------------------------------------

Sub1                        =         ----------------
------------------------------------------------------------

Date1                       =        --------------------

Date2                       =        -------------------

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

Tax Professional            =         -------------------------
--------------------------------------------------------------------------------------
----------------------------------------------------------------------------------
-----------------------------------------------------------------------


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

This letter responds to a letter dated August 21, 2015, requesting on behalf of Taxpayer
an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations to file a statement under § 1.337(d)-2(c) of the Income Tax
Regulations (hereinafter referred to as the “Election”) that was required to be filed with
PLR-128260-15                                 2

Taxpayer’s consolidated Federal income tax return for the taxable year ending Date2.
Additional information was received in subsequent correspondence dated October 6,
2015. The material information is summarized below.

For the taxable year ending on Date2, Taxpayer was the common parent of a
consolidated group (Taxpayer Group) that included (among other subsidiaries) Corp1
and Sub1. Corp1 owned 100 percent of Sub1.

On Date1 (a date prior to September 17, 2008), Sub1 merged into Corp1. At the time of
the merger, Sub1’s liabilities exceeded the fair market value of its assets and Corp1
recognized a loss with respect to the shares of Sub1.

An election under § 1.337(d)-2(c) to deduct the loss recognized on the disposition of
Sub1 stock was required to be filed with or as part of the Taxpayer consolidated group’s
consolidated Federal income tax return for the year of the disposition. However, for
various reasons, the Election was not filed. Subsequently, this request was submitted
under § 301.9100-3 for an extension of time to file the Election. Taxpayer has
represented that it is not seeking to alter a return position for which an accuracy-related
penalty has been or could have been imposed under § 6662.

Section 1.337(d)-2(a)(1) provides a general rule that no deduction is allowed for any
loss recognized by a member of a consolidated group with respect to the disposition of
stock of a subsidiary.

Section 1.337(d)-2(a)(2)(ii) provides that a disposition means any event in which gain or
loss is recognized, in whole or in part.

Section 1.337(d)-2(c)(1) provides that § 1.337(d)-2(c) applies with respect to stock of a
subsidiary only if a separate statement entitled “§ 1.337(d)-2(c) statement” is included
with the return in accordance with § 1.337(d)-2(c)(3).

Section 1.337(d)-2(c)(2) provides that loss is not disallowed under § 1.337(d)-2(a)(1) to
the extent the taxpayer establishes that the loss is not attributable to the recognition of
built-in gain, net of directly related expenses, on the disposition of an asset (including
stock and securities).

Section 1.337(d)-2(c)(3) provides that the statement required under § 1.337(d)-2(c)(1)
must be included with or as part of the taxpayer’s return for the year of the disposition or
deconsolidation.

Generally, § 1.337(d)-2 applies with respect to dispositions and deconsolidations on or
after March 3, 2005, and before September 17, 2008.
PLR-128260-15                                 3

Section 301.9100-1(a) cites §§ 301.9100-1 through 301.9100-3 as providing the
standards the Commissioner will use to determine whether to grant an extension of time
to make a regulatory election. 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 (Code) except subtitles E, G, H, and I.

Section 301.9100-2 provides automatic extensions of time for making certain elections
while § 301.9100-3 provides for extensions of time for making regulatory elections that
do not meet the requirements of § 301.9100-2. Section 301.9100-3(a) provides requests
for relief 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.

In this case, the time for filing the Election is fixed by the regulations (i.e., § 1.337(d)-
2(c)(3)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to
grant an extension of time for Taxpayer to file the Election, provided Taxpayer
establishes that 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.

Information, affidavits, and representations submitted by Taxpayer, Company Official,
and Tax Professional explain the circumstances that resulted in the failure to timely file
a valid Election. The information establishes the request for relief was filed before the
failure to make the Election was discovered by the Internal Revenue Service, and
Taxpayer reasonably relied on a qualified tax professional who failed to make or advise
Taxpayer to make the Election. 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 Taxpayer has established it acted reasonably
and in good faith in failing to timely file the Election for Sub1, the requirements
§§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the
interests of the government. Accordingly, we grant an extension of time, under
§ 301.9100-3, until 60 days from the date on this letter for Taxpayer to file the Election
with respect to the disposition of Sub1. However, 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.

The 60-day extension of time is conditioned on Taxpayer 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 made timely (taking into account the time value of
money).
PLR-128260-15                                  4

We express no opinion with respect to whether Taxpayer qualifies substantively to
make the Election. No opinion is expressed as to the tax effects or 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 the Taxpayer and its representatives. However, all of the
essential facts must be verified. 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. No opinion is expressed as to Taxpayer Group’s
tax liability for the years involved. A determination thereof will be made 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.

This ruling is directed only to the taxpayer requesting it. 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.

In accordance with the Power of Attorney on file with 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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