Parent receives more time to reattribute subsidiary tax attributes

Plain-English summary

A consolidated group sold a subsidiary and its lower-tier subsidiaries to an unrelated buyer at a loss. The parent intended to elect under Treasury Regulation Section 1.1502-36(d)(6)(i)(B) to reattribute certain tax attributes from the sold subsidiaries to itself, but it did not timely file the required statement. The parent requested relief before the IRS discovered the omission and represented that the subsidiaries had not used, and would not use, the reattributed attributes in separate return years. The IRS found that the parent acted reasonably and in good faith and that relief would not prejudice the government. It granted 90 days to file the election, conditioned on the group's aggregate tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: Should the parent receive extra time to elect to reattribute attributes from sold subsidiaries under the consolidated return unified-loss rules?
• Outcome: Approved: the parent received 90 days to file the election.
• Key authorities: Treas. Reg. §§ 1.1502-36(d)(6), 1.1502-36(e)(5), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202116010 Third Party Communication: None
Release Date: 4/23/2021 Date of Communication: Not Applicable
Index Number: 9100.22-00, 1502.36-00
Person To Contact:
----------------------------------------- ------------------------, ID No. -----------------
--------------------------------------------------- Telephone Number:
---------------------------------------------- --------------------
-------------------------------- Refer Reply To:
CC:CORP:B3
PLR-118747-20
Date:
January 26, 2021

Legend:

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

Sub1 = ------------------------------------------------------
-----------------------

Sub1Subsidiaries = ---------------------------------------------------------
-----------------------

                               -----------------------------------
                               -----------------------

Date = --------------------------

Company Officials = -----------------------------------------
--------------------------------

                               --------------------------------------
                               --------------------------------

Tax Professionals = ----------------------------
------------------------

                               -------------------------
                               ------------------------

Dear ----------------:
PLR-118747-20 2

This letter responds to your authorized representatives’ letter dated August 27, 2020,
requesting an extension of time under §301.9100-3 of the Procedure and Administration
Regulations. Specifically, Parent is requesting an extension of time for Parent to file an
election under §1.1502-36(d)(6)(i)(B) for the taxable year ending Date, for Parent to
reattribute certain attributes from Sub1 and the Sub1Subsidiaries to Parent (the
“Election”). The material information is summarized below.

During the taxable year ending Date, Parent was the common parent of a consolidated
group (“Parent Group”) that included Sub1 and its two subsidiaries (Sub1Subsidiaries)
(Sub1 and Sub1Subsidiaries are collectively referred to as “the Subsidiaries”). On Date,
Parent sold to an unrelated party all the outstanding shares of Sub1 (along with
Sub1Subsidiaries) at a loss. The sale was subject to the unified loss rule of §1.1502-
36.

Parent intended to file the Election, but for various reasons a valid Election was not
timely 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.

The period of limitations on assessment under section 6501(a) has not expired for the
Parent Group’s consolidated income tax return for the taxable year in which the sale of
the Sub1 stock occurred or any subsequent taxable year. Parent has represented that
it is not seeking to alter a return position for which an accuracy related penalty has been
or could be imposed under section 6662. Parent has also represented that no portion of
the attributes of the Subsidiaries that have or will be reattributed to Parent pursuant to
an election under §1.1502-36(d)(6)(i)(B) have been or will be used by the Subsidiaries
in a separate return year.

Section 1.1502-36 provides rules for adjusting members’ bases in stock of a subsidiary
(S) and for reducing S’s attributes when a member (M) transfers a loss share of S stock.
Section 1.1502-36(a)(1).

Section 1.1502-36(d) provides rules to reduce attributes of S and its lower tier
subsidiaries to the extent they duplicate a net loss on shares of S stock transferred by
members in one transaction. Section 1.1502-36(d)(6)(i) provides that notwithstanding
the general operation of §1.1502-36(d), the parent of a consolidated group (P) may
elect to reduce the potential for loss duplication, and thereby reduce or avoid attribute
reduction. Under this election, P may elect: (A) to reduce all or any portion (including
any portion in excess of a specified amount) of members’ bases in transferred loss
shares of S stock; (B) to reattribute all or any portion (including any portion in excess of
a specified amount) of S’s Category A, Category B, and Category C attributes (each as
defined in §1.1502-36(d)(4)), to the extent they would otherwise be subject to reduction
under §1.1502- 36(d); or (C) any combination thereof. Section 1.1502-36(d)(6)(ii)
provides that an election to reduce loss duplication under §1.1502-36(d)(6) is made in
the manner provided in §1.1502-36(e)(5).
PLR-118747-20 3

Section 1.1502-36(e)(5) states that the elections provided by §1.1502-36 are
irrevocable and made in a statement entitled “Section 1.1502-36 Statement” that must
be included on or with the group’s timely filed return (original or amended, if filed by the
due date of the return, including extensions) for the taxable year of the transfer of the
subsidiary stock to which the election relates.

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). 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).

The election by a consolidated group to reattribute tax attributes from a subsidiary to the
common parent under §1.1502-36(d)(6)(i)(B) is a regulatory election. 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 to the satisfaction of the
Commissioner 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.

Information, affidavits, and representations submitted by Parent, Company Officials, and
Tax Professionals explain the circumstances that resulted in the failure to timely file the
valid Election. The information establishes 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(b)(1)(i).

Based on the facts and information submitted, including the affidavits submitted and the
representations made, we conclude that Parent has shown it acted reasonably and in
good faith, that the requirements of §§301.9100-1 and 301.9100-3 are satisfied, and
that granting relief will not prejudice the interests of the government. Accordingly,
provided that Parent Group qualifies substantively to file the Election, we grant an
extension of time under §301.9100-3, until ninety (90) days from the date on this letter,
for Parent to file the Election.

Parent should file the Election in accordance with §1.1502-36(e)(5). Parent Group’s
return for the taxable year ending Date must be amended to attach the election
statement required by §1.1502-36(e)(5). A copy of this letter must be attached to the
election statement. Alternatively, if Parent files its returns electronically, Parent may
PLR-118747-20 4

satisfy the requirement of attaching a copy of this letter by attaching a statement to the
Parent Group’s amended return that provides the date and control number (PLR-
118747-20) of this letter ruling.

The above extension of time is conditioned on the 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 made timely (taking into account the time value of
money). We express no opinion as to the Parent Group’s or any of its members’ tax
liabilities. A determination thereof will be made by the Director’s office upon audit of the
income tax returns involved.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any item discussed or referenced in this letter. In particular, we
express no opinion with respect to whether Parent qualifies substantively to make the
Election. In addition, 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 Internal Revenue
Code or regulations, or as to the tax treatment of any conditions at the time of, or
resulting from, filing the Election late that are not specifically set forth in this letter.

For purposes of granting relief under §301.9100-3, we relied on certain statements and
representations made under penalty of perjury by Parent, Company Officials, and Tax
Professionals. The Director, however, should verify all essential facts. In addition,
notwithstanding that an extension is granted under §301.9100-3 to file the Election, any
penalties and interest that would otherwise be applicable 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 representatives.

                                   Sincerely,


                                   Thomas I. Russell
                                   Chief, Branch 1
                                   Office of Associate Chief Counsel (Corporate)

cc: