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

Plain-English summary

A parent corporation acquired a former consolidated group and intended to file a new 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 the consolidated return and the required Forms 1122, 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 newly formed affiliated group make its consolidated return election after the filing deadline?
• Outcome: approved
• 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: 201730008
Third Party Communication: None
Release Date: 7/28/2017
Date of Communication: Not Applicable
Index Number: 9100.20-00, 1502.75-00
Person To Contact:
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Telephone Number:
----------------------------------------- ---------------------- Refer Reply To:
CC:CORP:B05
PLR-103704-17
Date:
May 2, 2017

Legend

Parent = -------------------------------------
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Sub 1 = -----------------------------------------------------
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Sub 2 = ---------------------------------------------------
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Sub 3 = ----------------------------------------
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Year 1 = ---------------------------

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

Company Official = -----------------------------------------------------
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Tax Professional = ------------------------------------------------------------
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Dear ----------------:

This letter responds to a letter from your authorized representative, dated January 25, 2017, requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to file an election. The extension is being requested for Parent and its affiliated subsidiaries (the “Parent
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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 (the “Election”) for Year 1. Additional information was submitted in correspondence dated March 27, 2017. The material information provided is summarized below.

Prior to its acquisition by Parent, Sub 1 was the parent of a consolidated group composed of Sub 1, Sub 2, and Sub 3 (the “Old Group”). On Date 1, Parent acquired all the outstanding shares in Sub 1 and the Old Group terminated. Following the purchase, Sub 1, Sub 2, and Sub 3 became directly or indirectly wholly-owned subsidiaries of Parent.

The Parent Group intended to file a consolidated return for Year 1. An election for the Parent Group to file a consolidated income tax return for Year 1 was due on the last day prescribed by law (including extensions of time) for the filing of Parent’s return. For various reasons, however, a valid Election was not filed. Subsequently, Parent discovered that a valid the Election had not been filed and submitted, under §301.9100- 3, this request for an extension of time to file the Election. The period of limitations on assessment under §6501(a) has not expired for Year 1 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 at the time of the request (taking into account any qualified amended return within the meaning of §1.6664-2(c)(3)).

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. Section 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
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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., §1.1502-75(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 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 to 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, provided that the Parent Group qualifies substantively to file a consolidated return for the applicable taxable 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 of its affiliated subsidiaries for Year 1).

The above extension of time is conditioned on the 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 the 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, the Parent Group qualifies 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 purposes of granting relief under §301.9100-3, we relied on certain statements and representations made by Parent, Company Official, and Tax
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Professionals, accompanied by a penalty of perjury statement executed by an appropriate party.

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 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 on 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____
Ken Cohen
Chief, Branch 3
Office of Associate Chief Counsel (Corporate)