Consolidated group gets 60 days to waive its loss carryback

Plain-English summary

A consolidated group intended to waive the carryback period for a consolidated net operating loss but failed to attach a valid election statement to its return. Its prior and later returns were filed consistently with a waiver, and it represented that no part of the loss had been or would be carried back. The IRS found that the parent reasonably relied on a qualified tax professional and requested relief before the IRS discovered the omission. It granted 60 days to amend the return and attach the required election statement. The extension was conditioned on aggregate tax liability not being lower than it would have been if the election were timely.

Ruling snapshot

• Question: Could the consolidated group file a late election to relinquish the entire carryback period for its consolidated net operating loss?
• Outcome: Approved, with the amended return and election due within 60 days.
• Key authorities: IRC § 172(b)(3); Treas. Reg. §§ 1.1502-21(b)(3)(i), 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201637002                                              Third Party Communication: None
Release Date: 9/9/2016                                         Date of Communication: Not Applicable
Index Number: 9100.22-00, 1502.21-00
                                                               Person To Contact:
--------------------------------------                         ---------------------------, ID No. --------------
--------------------------------------                         Telephone Number:
-------------------------------                                ----------------------
-------------------------------                                Refer Reply To:
                                                               CC:CORP:B06
                                                               PLR-101388-16
                                                               Date:
                                                               June 8, 2016

                  TY: -------

Legend

Parent            =         ---------------------------------------
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X=                          ----------------------------------------------------
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Y=                          --------------------------
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Date 1            =        ---------------------------

Date 2            =        ----------------------------

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

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


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

This letter responds to a letter dated December 30, 2015, submitted on behalf of Parent,
requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the
Procedure and Administration Regulations to make an election. The extension is being
PLR-101388-16                                2

requested for Parent to make an election under § 1.1502-21(b)(3)(i) to relinquish the
entire carryback period for the Parent consolidated group's consolidated net operating
loss ("CNOL") for the tax year ending Date 1 (the "Election"). Additional information
was submitted in two letters and an e-mail dated March 8, March 23, and June 6, 2016.
The material information submitted for consideration is summarized below.

Parent is the common parent of a consolidated group, consisting of Parent, corporation
X, and corporation Y ("Parent Group"). Parent Group sustained a CNOL in the tax year
ending on Date 1. Parent intended to relinquish the carryback period for its
consolidated group's CNOL on its tax return for the tax year ending Date 1. All prior and
subsequent returns for Parent Group were filed consistent with a valid election having
been made. However, for various reasons, a valid election was not filed. After Date 2,
the date that the Election was due, it was discovered that a valid election was not filed.
Subsequently, this request was submitted for an extension of time to file a valid election.

Parent has represented that Parent Group has not, and will not, carry any portion of the
CNOL for the tax year ending Date 1 to a prior consolidated return year of Parent
Group. Parent has also represented that no member of the consolidated group of which
Parent was the common parent for the tax year ending Date 1, other than corporation X,
had a separate return year, within the meaning of § 1.1502-1(e), at any time during the
carryback period, and that none of the CNOL was attributable to corporation X.

Parent has further represented that Parent 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 the new position requires or permits a regulatory
election for which relief is requested.

Section 1.1502-21(b)(3)(i) provides that a consolidated group may make an irrevocable
election under § 172(b)(3) to relinquish the entire carryback period with respect to a
CNOL for any consolidated return year. The election is made in a separate statement
entitled "THIS IS AN ELECTION UNDER § 1.1502-21(b)(3)(i) TO WAIVE THE ENTIRE
CARRYBACK PERIOD PURSUANT TO SECTION 172(b)(3) FOR THE [insert
consolidated return year] CNOLs OF THE CONSOLIDATED GROUP OF WHICH [insert
name and employer identification number of common parent] IS THE COMMON
PARENT." Section 1.1502-21(b)(3)(i) also provides that the statement must be filed
with the group's income tax return for the consolidated return year in which the loss
arises.

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

In this case, the time for filing the Election is fixed by the regulations (i.e., § 1.1502-
21(b)(3)(i)). 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 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).

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
§ 301.9100-1, until 60 days from the date on this letter, for Parent to file the Election
with respect to the relinquishment of the entire carryback period for the CNOL for the
tax year ending Date 1, as described above.

The above extension of time is conditioned on the taxpayers' (Parent and the members
of its consolidated group) 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 made (taking into account the time value of money). No opinion is expressed as
to the taxpayers' tax liability for the years involved. A determination thereof will be
made by the Director's office upon audit of the Federal income tax returns involved.

Parent must file the Election in accordance with § 1.1502-21(b)(3)(i). Parent Group's
return for the tax year ending Date 1, having been filed consistent with a valid election
having been made, must be amended to attach the election statement required by
§ 1.1502-21(b)(3)(i). A copy of this letter must be attached to the election statement.
Alternatively, if the Parent Group files its returns electronically, Parent may satisfy this
PLR-101388-16                                 4

requirement by attaching a statement to its return that provides the date and control
number of this letter ruling.

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.

In accordance with the Power of Attorney on file with this office, copies of this letter are
being sent to your authorized representatives.

                                       Sincerely,


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