Former consolidated parent gets 60 days to waive a CNOL carryback

Plain-English summary

A corporation was the parent of a consolidated group until an unrelated buyer acquired it, ending the old group's tax year and bringing the companies into a new consolidated group. The former parent filed a short-period return with a consolidated net operating loss and intended to waive the entire carryback period but omitted the election statement. It represented that no part of the loss had been or would be carried back, no member had a separate return year during the carryback period, and the relevant assessment periods remained open. The IRS found that the taxpayer 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 make the irrevocable election under Treasury Regulation § 1.1502-21(b)(3)(i). Relief is conditioned on the aggregate tax liabilities of the old group and any successor groups not being lower than they would have been with a timely election.

Ruling snapshot

• Question: May the former consolidated parent belatedly waive the entire carryback period for its short-year CNOL?
• Outcome: Approved, with an amended return 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: 201903016                                               Third Party Communication: None
Release Date: 1/18/2019                                         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:B05
                                                                PLR-119887-18
                                                                Date:
                                                                October 17, 2018




Legend


New Common Parent                  = -----------------------------------------------------------------------------
                                   ----------------------------------
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Taxpayer                            = -----------------------------------
                           ------------------------

Subsidiary 1                        = -----------------------------------
                                    ------------------------

Subsidiary 2                        = -----------------------------------------------------------------------------
                                    -----------------
------------------------------------------------------------

Subsidiary 3                        = ---------------------------------------
                                    ------------------------

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

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

Date 3                              = --------------------------

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

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

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

This letter responds to your request for a ruling, submitted by your authorized
representative, dated June 20, 2018, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to file an election. The
extension is being requested for Taxpayer to file an election under § 1.1502-21(b)(3)(i)
of the Income Tax Regulations (the “Election”) to relinquish the entire carryback period
with respect to a consolidated net operating loss (“CNOL”) of the consolidated group of
which Taxpayer was the common parent for the short taxable year that ended on Date

2. Additional information was received in subsequent correspondence dated July 18,
2018, July 25, 2018, and August 30, 2018. The material information is summarized
below.

Prior to Date 2, Taxpayer wholly owned Subsidiary 1, Subsidiary 2 and Subsidiary 3
(the “Subsidiaries”), and the Subsidiaries joined Taxpayer in the filing of a U.S.
consolidated income tax return. On Date 2, Taxpayer was acquired by New Common
Parent, an unrelated third party, in a transaction that Taxpayer has represented does
not qualify as a “reverse acquisition” within the meaning of § 1.1502-75(d)(3). As a
result of the acquisition, Taxpayer’s consolidated group ceased to exist, its taxable year
terminated as of the end of Date 2, and on Date 3, Taxpayer and Subsidiaries joined a
different U.S. affiliated group with New Common Parent as the common parent.

Taxpayer filed a short period consolidated return for its consolidated group for the
period Date 1 through Date 2. Taxpayer intended to relinquish the carryback period for
its consolidated group’s CNOL on its tax return for the taxable year that ended on Date

2. For various reasons, a valid Election was not filed. Subsequent to Taxpayer filing
the return, it was discovered that the Election had not been filed. Thereafter, Taxpayer
submitted this request, 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 for which the election should have been filed or any subsequent taxable year.

Taxpayer represents that the consolidated group of which it was the common parent for
the taxable year ended Date 2 has not carried back, and will not carry back, any portion
of the CNOL to a prior consolidated return year of the Taxpayer consolidated group or
another consolidated group. Taxpayer also represents that no member of the
consolidated group of which Taxpayer was the common parent for the taxable year that
ended on Date 2 had a separate return year, within the meaning of § 1.1502-1(e) at any
time during the carryback period. Furthermore, Taxpayer represents that it is not
seeking to alter a return position for which an accuracy-related penalty has been or
could be imposed under § 6662 at the time release is requested.

Section § 1.1502-21(b)(3)(i) provides that a consolidated group may make an
irrevocable election 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 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 that 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
the Commissioner 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 Taxpayer to file the Election,
provided that Taxpayer shows 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 Taxpayer, Company Official
and Tax Professional explain the circumstances that resulted in the failure to timely file
a valid Election. The information establishes that Taxpayer relied upon a qualified tax
professional who failed to make, or advise Taxpayer to make, the Election, and that the
request for relief was filed before the Internal Revenue Service discovered the failure to
make the Election. See § 301.9100-3(b)(1)(i) and (v).

Based on the facts and information submitted, including representations made, we
conclude that Taxpayer 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, we grant an extension of time
under § 301.9100-3, until sixty days from the date on this letter, for Taxpayer to file the
Election.

The above extension of time is conditioned on the Taxpayer’s consolidated group’s tax
liability, if any, and the tax liability, if any, of the consolidated group of which a member
of Taxpayer’s consolidated group becomes a member being not lower, in the aggregate,
for all years to which the Election applies, and all subsequent years, 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 amount of tax liability for the years involved.
A determination thereof will be made upon audit of the Federal income tax returns
involved.

Taxpayer should amend its return to file the election in the manner described in
§ 1.1502-21(b)(3)(i) and the instructions to Form 1120. A copy of this letter should be
attached to the amended return. Alternatively, if Taxpayer files its amended return
electronically, it may satisfy this latter requirement by attaching to the return a statement
that provides the date and control number (PLR-119887-18) on this ruling letter.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. In addition, we express no opinion as to the tax effects or any other tax
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 effects 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 Taxpayer, Tax Professional, and Company Official. The
appropriate Service office, 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 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, a copy of this letter is
being sent to your authorized representative.


                                       Sincerely,


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