Consolidated group gets relief after a blown extension made its accounting-method Forms 3115 late

Plain-English summary

A parent company filing a consolidated return for itself and five
subsidiaries decided to change three accounting methods (for software costs,
certain leasehold-improvement depreciation, and intangibles), each of which
requires filing a Form 3115 with the timely return. The outside firm hired
to file the automatic extension (Form 7004) failed to submit it, so the
return, along with the attached original Forms 3115 and their signed
duplicate copies, was filed late. The company asked the IRS under Treasury
Regulation § 301.9100-3 to treat the Forms 3115 as timely. The IRS agreed:
the company acted reasonably and in good faith and relief would not prejudice
the government, so it granted the extension and will treat the Forms 3115 as
timely filed for purposes of Rev. Proc. 2015-13. The ruling pointedly does
not excuse the late Form 7004 or late Form 1120, and it takes no position on
whether the method changes themselves qualify. Businesses relying on advisors
to file extensions care because a single missed filing can otherwise sink an
entire year's method changes.

Ruling snapshot

• Question: Can a consolidated group get more time to file Forms 3115 that became late when its return-extension request was never filed?
• Outcome: Approved (Forms 3115 treated as timely under § 301.9100-3; no relief for the late return itself)
• Key authorities: Treas. Reg. §§ 301.9100-1, 301.9100-3; IRC § 446(e); Rev. Proc. 2015-13; Rev. Proc. 2018-31

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201917004 Third Party Communication: None
Release Date: 4/26/2019 Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 9100.10-00,
9100.10-01 Person To Contact:
----------, ID No. ----------
------------------------ -----------------
------------------------ Telephone Number/Fax Number:
--------------------------------------- ----------
------------------------------------- Refer Reply To:
---------------------------- CC:ITA:B7
PLR-119898-18
Date:

                                                           December 18, 2018

LEGEND

Parent = ----------
S1 = ----------
S2 = ----------
S3 = ----------
S4 = ----------
S5 = ----------
Firm = ----------
Date 1 = --------------------
Date 2 = ------------------------
Date 3 = ------------------------
Date 4 = ------------------------
Taxable Year = ----------

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

This letter responds to a letter dated June 14, 2018, and subsequent correspondence,
submitted by your representatives on behalf of Parent, S1, S2, S3, S4, and S5
(collectively referred to as "Taxpayer"). Taxpayer is requesting an extension of time
pursuant to §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations to file originals, and the signed, duplicate copy of each such original, of the
Forms 3115, Application for Change in Accounting Method, for the Taxable Year.

All references in this letter ruling to § 168 of the Internal Revenue Code are to § 168 as
in effect on the day before the date of the enactment of the Tax Cuts and Jobs Act, Pub.
L. No. 115-97, 131 Stat. 2054 (December 22, 2017).

FACTS

Parent represents the facts are as follows:

Parent was the common parent of an affiliated group of corporations, which includes S1,
S2, S3, S4, and S5, that files consolidated federal income tax returns on a calendar
year basis.

Parent engaged Firm to prepare its consolidated federal income tax return, the Form
1120, U.S. Corporation Income Tax Return, for the Taxable Year and to provide
technical tax advice, including advice related to Taxpayer's methods of accounting.
After meeting with Firm, Parent decided to change three methods of accounting: (i) S1's
treatment of computer software expenditures under section 9.01 of Rev. Proc. 2018-31;
2018-22 I.R.B. 637, 672, designated automatic accounting method change number
(DCN) 18; (ii) S1's method of depreciating certain property considered qualified
leasehold improvement property described in § 168(e)(6) under section 6.01 of Rev.
Proc. 2018-31, DCN 7; and (iii) Taxpayer's method of accounting for intangibles under
section 11.05 of Rev. Proc. 2018-31, DCN 78.

In accordance with the procedures of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, 432,
Taxpayer should have completed a separate, original Form 3115 for each of the desired
accounting method changes, and attached each of the originals to Parent's timely filed
(including extensions) original, consolidated federal income tax return, Form 1120, for
the Taxable Year. Further, in accordance with the procedures of Rev. Proc. 2015-13,
Parent also should have timely filed (including extensions) a copy of each original Form
3115, with an original signature or a photocopy of the original signature, with the
appropriate office of the Internal Revenue Service. Lastly, Parent's Form 1120 for the
Taxable Year should have reflected the three accounting method changes made by
Taxpayer.

Parent anticipated that it could not file its consolidated Form 1120 for the Taxable Year
by the due date, without extension, Date 1. Thus, as part of Firm's engagement by
Parent, Firm was tasked with preparing and submitting a Form 7004, Application for
Automatic Extension of Time to File Certain Business Income Tax, Information, and
Other Returns, for the Taxable Year, on or before Date 1. A proper and timely filed
Form 7004 would have provided Parent an extension to Date 2. However, due to an
inadvertent error, Firm did not electronically file the Form 7004 by Date 1. As a result,
when Parent did file its consolidated Form 1120 for the Taxable Year on Date 3, the
return was late. Parent's late filing of its return for the Taxable Year made the originals
of the Forms 3115, reflecting DCN 18, DCN 7, and DCN 78, which Parent also filed on
Date 3, late. In addition, the signed, duplicate copies of these originals, which Parent
filed on Date 4, were also late. Parent received confirmation from the Internal Revenue
Service that its Form 1120 and original Forms 3115 were received on Date 3 and the
signed, duplicate copies of the originals were received on Date 2. Parent represented
that the consolidated Form 1120 it filed on Date 3 for the Taxable Year reflects the three
accounting method changes made by S1 and Taxpayer, respectively.

RULING REQUESTED

Taxpayer requests an extension of time pursuant to §§ 301.9100-1 and 301.9100-3 to
file the originals, and the signed, duplicate, copies of these originals, of the Forms 3115
required by Rev. Proc. 2015-13 to obtain the consent of the Commissioner of Internal
Revenue to make accounting method changes DCN 18, DCN 7, and DCN 78 for the
Taxable Year.

LAW AND ANALYSIS

Rev. Proc. 2015-13 provides the procedures by which a taxpayer may obtain automatic
consent to change certain accounting methods. Section 9 of Rev. Proc. 2015-13
provides that consent of the Commissioner to change its accounting method under
§ 446(e)and § 1.446-1(e) of the Income Tax Regulations is granted only if the taxpayer
complies with all the applicable provisions of the revenue procedure and implements the
change in method on its federal income tax return for the requested year of change to
which the original Form 3115 is attached, pursuant to section 6.03.

Section 6.03(1)(a)(i) of Rev. Proc. 2015-13 provides that a taxpayer changing an
accounting method pursuant to Rev. Proc. 2015-13 must complete and file a Form 3115
in duplicate. The original Form 3115 must be attached to the taxpayer's timely filed
(including any extension) original federal income tax return for the year of change, and a
copy (with signature) of the Form 3115 must be filed with the appropriate office of the
Service no earlier than the first day of the year of change and no later than when the
original is filed with the federal income tax return for the year of change.

Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
to make certain regulatory elections.

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 an election. Section
301.9100-2 provides automatic extensions of time for making certain elections. Section
301.9100-3 provides extensions of time for making elections that do not meet the
requirements of § 301.9100-2.

Section 301.9100-1(b) defines a regulatory election as an election whose due date is
prescribed by a regulation published in the Federal Register, or a revenue ruling,
revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Section 301.9100-3(a) provides that requests for relief subject to § 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 the
granting of relief will not prejudice the interests of the Government.

Section 301.9100-3(c)(2) imposes special rules for accounting method regulatory
elections. This section provides, in relevant part, that the interests of the Government
are deemed to be prejudiced except in unusual and compelling circumstances when the
accounting method regulatory election for which relief is requested is subject to the
procedure described in § 1.446-1(e)(3)(i) (requiring advance written consent of
Commissioner) or the relief requires an adjustment under § 481(a) (or would require an
adjustment under § 481(a) if the taxpayer changed to the accounting method for which
relief is requested in a taxable year subsequent to the taxable year the election should
have been made).

CONCLUSION

Based solely on the facts and representations submitted, we conclude that the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly, an
extension of time is hereby granted for Parent to file the required originals and signed,
duplicate copies of the Forms 3115 for the Taxable Year. In this regard, we will
consider the originals and signed, duplicate copies of the Forms 3115 for the accounting
method changes made by Parent for itself, S1, S2, S3, S4, and S5 on Parent's
consolidated federal income tax return for the Taxable Year filed on Date 3 and Date 4,
to be timely filed for purposes of section 6.03 of Rev. Proc. 2015-13. A copy of this
letter should be associated with the originals and signed, duplicate copies of the Forms
3115 filed for the Taxable Year.

This letter ruling does not grant any extension of time for the filing of Parent's Form
7004 or Parent's Form 1120 for the Taxable Year.

Except as expressly set forth above, we express no opinion concerning the tax
consequences of the facts described above under any other provision of the Code or
regulations. Specifically, no opinion is expressed or implied concerning whether: (1)
any of the accounting method changes Taxpayer and S1 have made are eligible to be
made under Rev. Proc. 2018-31 and Rev. Proc. 2015-13; (2) Taxpayer and S1
otherwise meet the requirements of Rev. Proc. 2015-13 to make the requested
accounting method changes using the procedures of Rev. Proc. 2015-13; (3) Taxpayer
and S1 otherwise meet the requirements of DCN 18, DCN 7, and DCN 78, respectively.

The ruling contained in this letter ruling is based upon facts and representations
submitted by Parent with accompanying penalty of perjury statements executed by
appropriate parties. While this office has not verified any of the material submitted in
support of this request for an extension of time to file the required Forms 3115
pertaining to the accounting method changes (DCN 18, DCN 7, and DCN 78) for the
Taxable Year, all material is subject to verification on examination.

This letter ruling is directed only to Parent, who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

In accordance with the power of attorney, we are sending a copy of this letter to
Parent's authorized representatives. We are also sending a copy of this letter to the
appropriate operating division director.

                                      Sincerely,



                                      DEENA M. DEVEREUX
                                      Senior Technician Reviewer, Branch 7
                                      Office of Associate Chief Counsel
                                      (Income Tax & Accounting)

Enclosures (2):
copy of this letter
copy for section 6110 purposes

cc: