Late relief granted for a consolidated group to elect to waive its net operating loss carryback

Plain-English summary

A corporate group that has a net operating loss (NOL) can normally carry it back to earlier years for a refund, but it can instead elect to waive the carryback and save the loss for future years. That election must be made on the return for the loss year, and once the deadline passes it is gone. This taxpayer, the parent of a consolidated group, filed all its returns as though it had waived the carryback for a loss year, but a valid waiver election was never actually filed by the due date. It asked the IRS for extra time under Treasury Regulation section 301.9100-3. The IRS granted a 60-day extension to file the election, finding the parent reasonably relied on a tax professional who failed to make it and that relief would not prejudice the government, subject to the condition that the group's total tax not end up lower (accounting for the time value of money) than if the election had been timely. The ruling is a routine grant of 9100 relief that lets a consolidated group preserve a carryback-waiver election it had already acted on.

Ruling snapshot

• Question: Should the consolidated group's parent get an extension of time under Treas. Reg. § 301.9100-3 to file the late election under Treas. Reg. § 1.1502-21(b)(3)(i) waiving the carryback period for the group's consolidated NOL?
• Outcome: Approved (60-day extension, conditioned on no reduction in aggregate tax)
• 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: 201904014 Third Party Communication: None
Release Date: 1/25/2019 Date of Communication: Not Applicable
Index Number: 9100.22-00, 1502.21-00
Person To Contact:
----------------------- ----------------------------, ID No. --------------
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--------------------------------- Telephone Number:
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---------------------------------------------- Refer Reply To:
CC:CORP:3
PLR-126230-18
Date:
October 25, 2018

              TY: ------

LEGEND

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

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

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

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

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

This letter responds to a letter dated August 29, 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. Parent has requested
an extension 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 a letter dated October 18, 2018. The material information submitted for
consideration is summarized below.
PLR-126230-18 2

Parent was the common parent of a consolidated group ("Parent Group"). The 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 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. 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 the 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 at the
time Parent requested relief and the new return 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.

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
PLR-126230-18 3

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). 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) and to indicate the election in Schedule K of Form 1120. 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 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.
PLR-126230-18 4

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