Late relief granted to waive an NOL carryback for a consolidated group

Plain-English summary

The parent company of a consolidated group had a consolidated net operating loss (CNOL) for one tax year. It meant to give up the right to carry that loss back to earlier years (so it could instead carry the loss forward), and it filed all its returns as if it had made that election. The problem: the actual election statement, which the regulations require to be attached to the return, never got filed, and the deadline passed before anyone noticed. The company asked the IRS for extra time to file it late. Under Treas. Reg. § 301.9100-3, the IRS can grant more time for a missed regulatory election if the taxpayer acted reasonably and in good faith and the government is not harmed. The IRS found the parent had reasonably relied on a tax professional who failed to make or advise the election, so it granted 60 days from the date of the letter to file the waiver statement. Anyone who blew a similar election deadline by relying on a bungling advisor would care: this is the standard path to fix it.

Ruling snapshot

• Question: May the parent get a late extension to file the statement electing, under § 1.1502-21(b)(3)(i), to relinquish the entire carryback period for its group's CNOL?
• Outcome: approved (60-day extension granted under § 301.9100-1)
• Key authorities: IRC § 172(b)(3); Treas. Reg. § 1.1502-21(b)(3)(i); Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                        Department of the Treasury
                                                Washington, DC 20224

Number: 201837003                               Third Party Communication: None
Release Date: 9/14/2018                         Date of Communication: Not Applicable
Index Number: 9100.22-00, 1502.21-00
                                                Person To Contact:
                                                [redacted]
                                                Telephone Number:
                                                [redacted]
                                                Refer Reply To:
                                                CC:CORP:B01
                                                PLR-116488-18
                                                Date:
                                                June 19, 2018


Parent                     =    [redacted]
Date 1                     =    [redacted]
Date 2                     =    [redacted]
Company Official           =    [redacted]
Tax Professional           =    [redacted]


Dear [redacted]:

This letter responds to a letter from your authorized representative dated April 17, 2018,
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 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"). The material information submitted for consideration is summarized below.

Parent is the common parent of a consolidated group ("Parent Group"). Parent Group
incurred a CNOL in the tax year ending 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 returns for the Parent Group were filed consistent with a valid
election having been made. However, for various reasons, a valid election was not
filed. On or about Date 2, after the date that the Election was due (with extensions), 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 back any portion of
the CNOL for the tax year ending Date 1 to a prior consolidated return year of the
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 had a separate
return year, within the meaning of § 1.1502-1(e), at any time during the carryback
period.

Parent has further represented that Parent is not seeking to alter a return position for
which an accuracy-related penalty has been or could be imposed under § 6662.

Section 1.1502-21(b)(3)(1) 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.

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 301.9100-1(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. See
§ 301.9100-3(b)(1)(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 Directors' office upon audit of the Federal income tax returns involved.

Parent must file the Election in accordance with § 1.1502-21(b)(3)(i). The 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
latter requirement by attaching a statement to its return that provides the date on and
control number of this letter ruling.

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 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 Parent, Company Official, and Tax Professional. However,
the Director should verify all essential facts. Moreover, 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 letter 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, 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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