Corporate group receives 60 days to make a late consolidated return election

Plain-English summary

A parent corporation acquired a subsidiary and intended to file a consolidated federal income tax return with itself as common parent. A valid election was not filed by the regulatory deadline, and the parent discovered the error before the IRS did. The IRS found that the parent reasonably relied on a qualified tax professional and otherwise acted reasonably and in good faith. It granted 60 days to file a consolidated return with a Form 1122 for each group member, provided the group substantively qualified. The relief also required that aggregate tax liability for all affected years not be lower than if the election had been timely made.

Ruling snapshot

• Question: Could the parent and subsidiary make their consolidated return election after the filing deadline?
• Outcome: approved, with a 60-day extension
• Key authorities: IRC § 1502; Treas. Reg. §§ 1.1502-75(a)(1), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                         Department of the Treasury
                                                                 Washington, DC 20224

Number: 201717018                                                Third Party Communication: None
Release Date: 4/28/2017                                          Date of Communication: Not Applicable
Index Number: 9100.20-00, 1502.75-00
                                                                 Person To Contact:
-----------------------                                          -----------------------------,
-------------------------------                                  ID No. ------------------
----------------------------                                     Telephone Number:
----------------------------------------                         ----------------------
----------------------------------                               Refer Reply To:
                                                                 CC:CORP:B02
                                                                 PLR-129569-16
                                                                 Date:
                                                                 January 09, 2017




Legend

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

Subsidiary                  =      ---------------------------------------------------------------------------------
                                   --------------------------------

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

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

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

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



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

This letter ruling responds to a letter dated September 7, 2016, as revised on November
22, 2016, 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
file an election. The extension is being requested for Parent and Subsidiary (“Parent
Group”) to make an election to file a consolidated federal income tax return, with Parent
as the common parent, under § 1.1502-75(a)(1) of the Income Tax Regulations for the
PLR-129569-16                                  2

taxable year ending Date 2 (hereinafter referred to as the “Election”). Additional
information was submitted in a letter dated December 19, 2016. The material
information submitted for consideration is summarized below.

Parent is a domestic corporation. On Date 1, Parent acquired all the stock of Subsidiary,
a domestic corporation. An election for Parent Group to file a consolidated income tax
return, with Parent as the common parent, for the taxable year ending Date 2 was due
on the last day prescribed by law (including extensions of time) for the filing of Parent’s
return. Parent intended to file the Election, but for various reasons, a valid Election (i.e.,
the filing of the consolidated return) was not filed by the due date of Parent’s return.
After the due date for the Election, it was discovered that the Election had not been
filed. Subsequently, this request was submitted, under § 301.9100-3, for an extension of
time to file the Election. The period of limitations on assessment under § 6501(a) has
not expired for the taxable year ending Date 2 or any subsequent taxable year. Parent
has represented that it does not seek to alter a return position for which an accuracy-
related penalty has been or could be imposed under § 6662.

Section 1.1502-75(a)(1) of the Income Tax Regulations provides, in part, that an
affiliated group of corporations which did not file a consolidated return for the
immediately preceding taxable year may file a consolidated return in lieu of separate
returns for the taxable year, provided that each corporation which has been a member
of the group during any part of the taxable year for which the consolidated return is to
be filed consents, in accordance with § 1.1502-75(b) of the regulations, to the
regulations under § 1502. If a group wishes to exercise its privilege of filing a
consolidated return, such consolidated return must be filed not later than the last day
prescribed by law (including extensions of time) for the filing of the common parent’s
return.

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.
§ 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. § 301.9100-3(a).

In this case, the time for filing the Election is fixed by the regulations (i.e.,
§ 1.1502-75(a)(1)). Therefore, the Commissioner has discretionary authority under
§ 301.9100-3 to grant an extension of time for Parent to file the Election, provided
PLR-129569-16                                 3

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 Professional explain the circumstances that resulted in the failure to timely file the
Election. The information establishes that Parent reasonably relied on a qualified tax
professional who failed to make, or advise Parent to make, a valid 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, provided that Parent Group qualifies
substantively to file a consolidated return for the applicable tax year, we grant an
extension of time, under § 301.9100-3, for sixty (60) days from the date on this letter for
Parent to file the Election (by filing a consolidated return, with Parent as the common
parent, and attaching a Form 1122 for each member of Parent Group for its taxable
year ending Date 2). Parent Group, having filed a return as though a valid Election was
made, must amend its previously filed return to attach a copy of this ruling letter to such
return. Alternatively, if Parent Group files its return electronically, this requirement may
be satisfied by attaching a statement to the return that provides the date on, and the
control number of, this ruling letter (January 9, 2017; PLR-129569-16).

The above extension of time is conditioned on Parent Group’s 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 Parent Group’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.

We express no opinion with respect to whether, in fact, Parent Group qualifies
substantively to file a consolidated return. In addition, we express no opinion as to the
tax effects or consequences of filing the return or the Election late under the provisions
of any other section of the Code or regulations, or as to the tax treatment of any
conditions existing at the time of, or effects resulting from, filing the return or the
Election late that are not specifically set forth in the above ruling.

For the purposes of granting relief under § 301.9100-3, we relied on certain statements
and representations made by Parent, Company Official, and Tax Professional.
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.
PLR-129569-16                                 4


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
                                       Chief, Branch 3
                                       Office of Associate Chief Counsel (Corporate)




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