Bankrupt loss group gets 45 days to elect out of Section 382(l)(5)

Plain-English summary

A consolidated loss group underwent an ownership change while under a court's jurisdiction in a title 11 case. The parent intended to elect out of the special section 382(l)(5) bankruptcy rule but failed to file the election by the return deadline after relying on a qualified tax professional. The request arrived before the IRS discovered the omission. The IRS found that the parent acted reasonably and in good faith and that relief would not prejudice the government, and it granted 45 days to file the election. Relief was conditioned on the group's aggregate tax liability not being lower than with a timely election.

Ruling snapshot

• Question: Could the parent receive additional time to elect out of section 382(l)(5) after the bankruptcy ownership change?
• Outcome: Approved, with 45 days to file the election.
• Key authorities: IRC § 382(l)(5); Treas. Reg. §§ 1.382-9(i), 301.9100-1, and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201949017 Third Party Communication: None
Release Date: 12/6/2019 Date of Communication: Not Applicable
Index Number: 382.00-00, 9100.22-00,
9100.00-00, 382.12-00, Person To Contact:
382.12-13 -----------------------, ID No. -------------------
---------------------------------------------------
------------------------ Telephone Number:
--------------------------------------- ----------------------
------------------------------------------------ Refer Reply To:
------------------------------- CC:CORP:4
PLR-107027-19
Date:
September 12, 2019

Legend

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

Subsidiary1 = ----------------------------------------

Subsidiary2 = ---------------------------------------

Date1 = --------------------

Date2 = ---------------------------

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

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

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

This letter responds to a letter dated March 29, 2019, submitted on behalf of Parent,
requesting an extension of time under §301.9100-3 of the Procedure and Administration
regulations to file an election under §1.382-9(i) not to have the provisions of section
382(l)(5) apply to an ownership change in a title 11 or similar case (the “Election”).
Additional information was received subsequently.
PLR-107027-19 2

Parent is the common parent of an affiliated group consisting of itself, Subsidiary1, and
Subsidiary2 (the “Parent Group”), which files consolidated Federal income tax returns.
On Date1, Parent Group, a loss group, underwent an ownership change as defined in
section 382(g) and §1.1502-92(b)(1)(i). Immediately before the ownership change on
Date1, Parent Group was under the jurisdiction of a court in a title 11 case. Parent has
represented that it does not seek to alter a return position for which an accuracy-related
penalty has been or could have been imposed under section 6662 of the Code.

Section 382(l)(5) provides that if certain requirements are met, section 382(a) shall not
apply to an ownership change. If section 382(l)(5) applies, certain limitations are placed
on a corporation.

Section 382(l)(5)(H) provides that a new loss corporation may elect, subject to such
terms and conditions as the Secretary may prescribe, not to have the provisions of
section 382(l)(5) apply. Any such election must be made by the due date (including any
extensions of time) of the loss corporation's tax return for the taxable year which
includes the change date. Section 1.382-9(i).

The Election was required to be filed by the due date (including any extensions of time)
of Parent Group's tax return for the taxable year ending Date2, but for various reasons a
valid Election was not filed. After the due date for the Election, it was discovered that
the Election had not been filed. Subsequently, this request was submitted under
§301.9100-3, for an extension of time to file 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. 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 301.9100-3(a).

In this case, the time for filing the Election is fixed by the regulations (i.e., §1.382-9(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 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.

The information, affidavits, and representations submitted by Parent, Company Official,
and Tax Professional explain the circumstances that resulted in the failure to timely file
PLR-107027-19 3

a valid 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, and
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)(i) and (v).

Based on the facts and information submitted, including the representations made, we
conclude that Parent has shown 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. Accordingly, an extension of time is granted
under §301.9100-3, until 45 days from the date on this letter, for Parent to file the
Election.

The above extension of time is conditioned on the 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 upon audit of the Federal income
tax returns involved. Further, no opinion is expressed as to the Federal income tax
effect, if any, if it is determined that the Parent Group’s tax liability is lower. Section
301.9100-3(c).

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.

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.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number (PLR-
107027-19) of this letter ruling.

Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representatives.

                                       Sincerely,


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

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