Consolidated group received 60 days for a late section 382 closing-of-the-books election

Plain-English summary

A consolidated group experienced an ownership change that limited the use of its pre-change losses under section 382. The group missed the deadline to elect to close its books on the ownership-change date when allocating income, losses, and gains between the pre-change and post-change periods. It requested relief before the IRS discovered the omission and showed that it acted reasonably and in good faith. The IRS granted 60 days to amend the return and attach the required election statement. Relief was conditioned on the group's aggregate tax liability, including the time value of money, being no lower than if the election had been timely made.

Ruling snapshot

• Question: May the consolidated group make a late section 382 closing-of-the-books election for its ownership change?
• Outcome: approved, with 60 days to amend the return and file the election statement
• Key authorities: IRC § 382; Treas. Reg. §§ 1.382-6(b), 1.382-11(a), and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201942005                                            Third Party Communication: None
Release Date: 10/18/2019                                     Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.22-00,
              382.02-05                                      Person To Contact:
                                                             ------------------------------, ID No. ------------
--------------------------                                   -----------------
----------------------------------------                     Telephone Number:
------------------------------                               ----------------------
                                                             Refer Reply To:
---------------------------------------                      CC:CORP:01
                                                             PLR-102872-19
                                                             Date:
                                                             July 23, 2019




Parent                     = -----------------------------------------------------------------------------------
                             ---------------------------------------------------------------------

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

Year 1                     = -------

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

Tax Professional 1 = -----------------------------------------------------------------------------------
                     -----------------------------------------------------------------------------------
                     ---------------------

Tax Professional 2 = -----------------------------------------------------------------------------------
                     -----------------------------------------------------------------------------------
                     -----------------------------------------------------------------------------------
                     -------


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

This letter responds to a letter dated January 4, 2019, 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 file an election.

Parent is requesting an extension of time for the consolidated group of which Parent is
the common parent to make a closing-of-the-books election under §1.382-6(b) of the
Income Tax Regulations (the “Election”) with respect to an ownership change, within the
PLR-102872-19                                 2

meaning of section 382 of the Internal Revenue Code (the “Code”). Additional
information was submitted subsequently. The material information provided is
summarized below.

Parent is the common parent of a consolidated group (the “Parent Group”). On Date 1,
Parent Group experienced an ownership change as defined in section 382(g) (the
“ownership change”) and, consequently, section 382(a) limited its ability to offset post-
change taxable income and liabilities by pre-change losses.

An election under §1.382-6(b) to close its books with respect to the ownership change
was due by the due date (including extensions) of the Parent Group’s tax return for the
Year 1 taxable year, but for various reasons, Parent did not make the Election.
Subsequently, Parent submitted this request under §301.9100-3 for an extension of
time to file the Election. Parent has represented that Parent Group is not seeking to
alter a return position for which an accuracy related penalty has been or could be
imposed under section 6662 at the time of the request for relief.

Section 1.382-6(b)(1) allows a loss corporation to elect to allocate its net operating loss
or taxable income and its net capital loss or modified capital gain net income for the
change year between the pre-change period and the post-change period as if the loss
corporation’s books were closed on the change date.

Section 1.382-6(b)(2)(i) provides that a loss corporation makes the closing-of-the-books
election by including the following statement on the information statement required by
§1.382-11(a) for the change year: “THE CLOSING-OF-THE-BOOKS ELECTION
UNDER §1.382-6(b) IS HEREBY MADE WITH RESPECT TO THE OWNERSHIP
CHANGE OCCURRING ON [INSERT DATE].” The election must be made on or before
the due date (including extensions) of the loss corporation’s income tax return for the
change year.

Section 1.382-6(b)(3)(i) provides that if an election under §1.382-6(b) is made with
respect to an ownership change occurring in a consolidated return year, all allocations
under this section with respect to that ownership change must be consistent with the
election.

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
PLR-102872-19                                 3

the taxpayer provides evidence that it 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., §1.382-
6(b)(2)(i)). Therefore, the Commissioner has discretionary authority under §301.9100-3
to grant an extension of time for Parent to file the Election, provided that Parent
establishes to the satisfaction of the Commissioner that it acted reasonably and in good
faith, and that granting relief will not prejudice the interests of the government.

Information, affidavits, and representations submitted by Parent, Company Official, Tax
Professional 1, and Tax Professional 2 explain the circumstances that resulted in the
failure to timely file the Election. The information establishes 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).

Based on the facts and information submitted, including the affidavits submitted and
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, we grant
an extension of time under §301.9100-3, for sixty (60) days from the date of this letter,
for Parent to file the Election.

The above extension of time is conditioned on 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.

Parent should file the election in accordance with §1.382-6(b)(2). The Parent Group’s
return must be amended to attach the election statement required by §1.382-6(b)(2). A
copy of this letter should be attached to the election statement. Alternatively, if Parent
Group files its amended return electronically, Parent Group may satisfy this latter
requirement by attaching to the return a statement that provides the date of this letter
and control number (PLR-102872-19) of this letter ruling.

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.

For purposes of granting relief under §301.9100-3, we relied on certain statements and
representations made by Parent, Company Official, Tax Professional 1 and Tax
Professional 2. However, the Director should verify all essential facts. In addition,
PLR-102872-19                                  4

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,



                                       T. Ian Russell
                                       Branch Chief, Branch 1
                                       Office of Associate Chief Counsel (Corporate)