IRS allows a late election to waive target losses' carryback to a former group

Plain-English summary

A consolidated group acquired a target corporation that had previously belonged to another consolidated group. The acquiring group intended to elect under the consolidated-return rules to relinquish the portion of the carryback period during which the target was a member of its former group, but it did not timely file a valid election. No target loss available for carryback had been or would be used by the former group. The IRS found that the acquiring group acted reasonably and in good faith and granted 45 days to amend its return and attach the required election statement. Relief was conditioned on the acquiring and former groups' aggregate tax liability not being lower than it would have been with a timely election, and otherwise applicable penalties and interest remained in effect.

Ruling snapshot

• Question: Could the acquiring consolidated group receive more time to waive carryback of the target's consolidated net operating losses to its former group?
• Outcome: approved (the group received 45 days to file the election)
• Key authorities: IRC § 172; Treas. Reg. §§ 1.1502-21(b)(3)(ii)(B), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                        Department of the Treasury
                                                                 Washington, DC 20224

 Number: 202024006                                               Third Party Communication: None
 Release Date: 6/12/2020                                         Date of Communication: Not Applicable
 Index Number: 9100.22-00
                                                                 Person To Contact:
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 -------------------------                                       Telephone Number:
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                                                                 Refer Reply To:
 ---------------------                                           CC:CORP:B05
 ------------------------------                                  PLR-122375-19
                                                                 Date:
                                                                 March 11, 2020




Legend


Parent                     = -------------------------
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Sub 1                      = -------------------------------------------
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Acquiring                 = --------------------------------

Former Parent              = -----------------------------------
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Target                     = ---------------------------------------
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Date 1                    = ----------------

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

Company Official = ----------------------------------------------
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Tax Professional           = ---------------------------------
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Dear -------------:
PLR-122375-19                                2

This letter responds to a letter dated September 18, 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. The extension is being requested for
Parent Group to file an election under §1.1502-21(b)(3)(ii)(B) of the Income Tax
Regulations to relinquish, with respect to all consolidated net operating losses
(“CNOLs”) attributable to Target, the portion of the carryback period for which Target
was a member of another group (the “Election”). Additional information was submitted
subsequently. The material information submitted for consideration is summarized
below.

Parent is the common parent of an affiliated group of corporations that file a
consolidated federal income tax return (the “Parent Group”). Sub 1 is a member if the
Parent Group.

Prior to Date 1, Former Parent owned all the stock of Target, and Former Parent and
Target were included in the consolidated federal income tax return of Former Parent
(the “Former Parent Group”). Sub 1 formed Acquiring to acquire Target. On Date 1,
Acquiring purchased 100% of the outstanding stock of Target from Former Parent and
Acquiring merged into Target with Target surviving.

Parent and its includible subsidiaries (which included Sub 1 and Target) filed a
consolidated federal income tax return for Parent’s taxable year ending Date 2. The
Election was due by the due date of Parent’s tax return for the taxable year ending Date
2, but for various reasons a valid election was not filed. Subsequently, this request was
submitted under §301.9100-3 for an extension of time to file the Election. The period of
limitations on assessment under section 6501(a) has not expired for Parent’s taxable
year in which the Election should have been filed or for any subsequent taxable years.

It has been represented that no loss attributable to Target available for carryback to the
Former Parent Group has ever been used nor will be used by the Former Parent Group.

Section 1.1502-21(b)(3)(ii)(B) provides that if one or more members of a consolidated
group become members of another consolidated group, the acquiring consolidated
group may elect to relinquish, with respect to all CNOLs attributable to the member, the
portion of the carryback period for which the corporation was a member of another
group. This election is available provided that any other corporation joining the
acquiring group that was affiliated with the member immediately before it joined the
acquiring group is also included in the waiver. This election is not a yearly election and
applies to all losses that would otherwise be subject to a carryback to a former group
under section 172.

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.
PLR-122375-19                                 3


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
certain 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 regulations (i.e., §1.1502-
21(b)(3)(ii)(B)). Therefore, the Commissioner has discretionary authority under
§301.9100-3 to grant an extension of time for Parent Group to file the Election, provided
Parent Group shows 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 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 representations made, we
conclude that Parent Group has established that it acted reasonably and in good faith in
failing to timely file the Election, 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 45 days from the
date on this letter, for Parent Group to file the Election.

Parent Group should file the Election in accordance with §1.1502-21(b)(3)(ii)(B). Parent
Group’s return must be amended to attach the election statement required by §1.1502-
21(b)(3)(ii)(B). A copy of this letter should be attached to the Election statement.
Alternatively, if Parent Group files the return electronically, Parent Group may satisfy
this requirement by attaching a statement to the return that provides the date on, and
control number of (PLR-122375-19), this letter ruling.

The above extension of time is conditioned on Parent Group’s and Former Parent
Group’s tax liability (if any) not being 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 upon audit of the
federal income tax returns involved.
PLR-122375-19                                         4

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 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. 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, all essential facts
must be verified. In addition, 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 letter is directed only to the taxpayer requesting it. Section 6110(k)(3) 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 representatives.


                                                Sincerely,



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


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