Parent receives more time for unified-loss basis election

Plain-English summary

The parent of a consolidated group transferred stock of a subsidiary in a restructuring and missed the deadline for an election under Treas. Reg. § 1.1502-36. The election would reduce the parent's basis in the transferred loss shares by the attribute-reduction amount, limiting duplicated losses. The parent showed that it reasonably relied on a qualified tax professional who did not make or recommend the election and sought relief before the IRS discovered the omission. The IRS granted 60 days to file the election and amend the group's returns. Relief was conditioned on the group's total tax liability for affected years not being lower than it would have been with a timely election.

Ruling snapshot

• Question: Should the consolidated-group parent receive more time to elect a stock-basis reduction under the unified loss rules?
• Outcome: Approved, with 60 days to file, subject to substantive eligibility and the tax-liability condition
• Key authorities: Treas. Reg. §§ 1.1502-36(d)(6), 1.1502-36(e)(5), and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                           Department of the Treasury
                                                                   Washington, DC 20224

Number: 201628019                                                   Third Party Communication: None
Release Date: 7/8/2016                                              Date of Communication: Not Applicable
Index Number: 1502.36-00, 9100.20-00
                                                                    Person To Contact:
------------------------------------                                ------------------, ID No. ----------------
----------------------------                                        Telephone Number:
----------------------------------------------------------------    --------------------
--------------------------------------------------                  Refer Reply To:
 --------------------------------                                   CC:CORP:2
                                                                    PLR-139702-15
                                                                    Date:
                                                                    April 13, 2016




Legend

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

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

Holding Company                 =     ----------------------------------------------------------------------------------------------
                                      ----------------------------------------------------------------------------------------------
                                      ------------------------------------------------

HC Sub                          =     ----------------------------------------------------------------------------------------------
                                      ----------------------------------------------------------------------------------------------
                                      ----------------------------------------------------

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

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

Tax Professional                =     ----------------------------------------------------------------------------------------------
                                      ----------------------------------------------------------------------------------------------
                                      ---------------------------------------------
PLR-139702-15                                2



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

        This is in response to a letter dated November 24, 2015, submitted on behalf of
Parent, requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations. In particular, Parent is requesting an extension of time for
Parent to file an election under § 1.1502-36(d)(6)(i)(A) for the taxable year ended Date
1, for Parent to reduce its adjusted basis in the stock of Sub1 by the attribute reduction
amount (the “Election”). Additional information was submitted in documents dated
January 11, 2016. The material information is summarized below.

       During the year at issue, Parent was the common parent of a consolidated group
(the “Parent Group”). Parent Group consisted of: Parent; Parent’s wholly-owned
subsidiary, Sub1; and entities wholly-owned by Sub1 or Sub1’s subsidiaries.

      Pursuant to a restructuring on Date 1, the following steps took place. Parent’s
shares in Sub1 were cancelled and new Sub1 stock was issued to new equity holders.
The Sub1 stock issued to the new equity holders was automatically contributed to newly
formed Holding Company in exchange for stock in Holding Company. Holding
Company then immediately contributed the Sub1 shares to its wholly-owned subsidiary,
HC Sub. As a result of the Date 1 restructuring, Parent was no longer affiliated with
Sub1 and Sub1’s subsidiaries (direct or indirect), and constituted a transfer by Parent of
the Sub1 stock under § 1.1502-36(f)(10).

        An election under § 1.1502-36 with respect to Parent’s transfer of Sub1 stock
was due by the due date (including extensions) of Parent Group’s consolidated return
for the taxable year ending Date 1. However, for various reasons, no election was
made. Subsequently, Parent submitted this request, 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
an accuracy related penalty has been or could have been imposed under § 6662 at the
time Parent requested relief and for which the new position requires or permits a
regulatory election for which relief is requested.

      Section 1.1502-36 provides rules for adjusting members’ (M) basis in stock of a
subsidiary (S) and for reducing S’s attributes when M transfers a loss share of S stock.
Section 1.1502-36(a)(1).

      Section 1.1502-36(d) provides rules to reduce attributes of S and its lower-tier
subsidiaries to the extent they duplicate a net loss on shares of S stock transferred by
members in one transaction.
PLR-139702-15                                 3

        Section 1.1502-36(d)(6)(i) provides that notwithstanding the general operation of
§ 1.1502-36(d), the parent of a consolidated group (“P”) may elect to reduce the
potential for loss duplication, and thereby reduce or avoid attribute reduction. Under this
election, P may elect: (A) to reduce all or any portion (including any portion in excess of
a specified amount) of members’ bases in transferred loss shares of S stock; (B) to
reattribute all or any portion (including any portion in excess of a specified amount) of
S’s Category A, Category B, and Category C attributes, to the extent they would
otherwise be subject to reduction under § 1.1502-36(d); or (C) any combination thereof.

      Section 1.1502-36(d)(6)(ii) provides that an election to reduce loss duplication
under § 1.1502-36(d)(6) is made in the manner provided in § 1.1502-36(e)(5).

       Section 1.1502-36(e)(5) states that the elections provided by § 1.1502-36 are
irrevocable and made in a statement entitled “Section 1.1502-36 Statement” that must
be included on or with the group’s timely filed return (original or amended, if filed by the
due date of the return, including extensions) for the taxable year of the transfer of the
subsidiary stock to which the election relates.

       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 reduce a member’s basis in its loss
shares of subsidiary stock under § 1.1502-36(d)(6)(i)(A) 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.

        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).
PLR-139702-15                                  4

       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 the 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.

        Parent should file the Election in accordance with § 1.1502-36(e)(5). Parent
Group’s returns must be amended to attach the election statements required by
§ 1.1502-36(e)(5). A copy of this letter must be attached to the election statement.
Alternatively, if Parent files its returns electronically, Parent may satisfy the requirement
of attaching a copy of this letter by attaching a statement to the Parent Group’s
amended return that provides the date and control number (PLR-139702-15) of this
letter ruling.

       The above extension of time is conditioned on the 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 the Parent Group’s or any of its
members’ tax liabilities. 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.

        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 requesting it. Section 6110(k)(3)
of the Code provides that it may not be used or cited as precedent.
PLR-139702-15                                    5

       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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