Consolidated group gets 75 days to make a late unified-loss election

Plain-English summary

A consolidated group's subsidiary sold all the stock of its own subsidiary at a loss, ending the sold corporation's affiliation with the group. The parent intended to elect under the unified loss rules to reduce the seller's basis in the transferred stock by a specified amount but failed to include the election with the timely consolidated return. The parent requested relief before the IRS discovered the missed election and represented that it was not trying to alter a position exposed to an accuracy-related penalty. The IRS found that the parent acted reasonably and in good faith and that relief would not prejudice the government. It granted 75 days to file the election and amend the group's returns to attach the required statement. Relief was conditioned on the group's aggregate tax liability not being lower than it would have been with a timely election, and the IRS did not decide whether the group substantively qualified.

Ruling snapshot

• Question: May the consolidated group file a late election to reduce basis in transferred loss shares under the unified loss rules?
• Outcome: Approved: the parent received 75 days to file the election and amended returns.
• 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: 202121007 Third Party Communication: None
Release Date: 5/28/2021 Date of Communication: Not Applicable
Index Numbers: 9100.22-00, 1502.36-00
Person To Contact:
---------------------------- ------------------, ID No. -----------------
--------------------- Telephone Number:
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--------------------- Refer Reply To:
------------------------------- CC:CORP:B01
PLR-125309-20
Date:
March 03, 2021

Legend

Parent = ------------------------------------
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Sub 1 = --------------------------------------
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Sub 2 = ---------------------------------------------------------
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Date 1 = --------------------------

Year = -------

Amount = -------------------

Company Official = ----------------------------------------------------------
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Dear --------------:

This letter responds to your authorized representatives' letter dated October 26, 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)(A) for the taxable year ended Date 1, for Sub 1 to
PLR-125309-20 2

reduce its adjusted basis in the stock of Sub 2 by Amount (the “Election”). The material
information submitted is summarized below.

During Year, Parent was the common parent of a consolidated group (“Parent Group”)
that included Sub 1 and Sub 1's wholly owned subsidiary, Sub 2. Parent has
represented that, during Year, Sub 1 sold all the outstanding stock of Sub 2 at a loss
and the sale constituted a transfer of the Sub 2 stock under §1.1502-36(f)(10). As a
result of the sale, Parent Group was no longer affiliated with Sub 2.

The Election was due by the due date (including extensions) of Parent Group's
consolidated return for the taxable year ending Date 1. Parent intended to make the
Election but, for various reasons, no election was made. Subsequently, Parent
submitted this request, under §301.9100-3, for an extension of time to file the Election.
Parent has represented that it is not seeking to alter a return position for which an
accuracy related penalty has been or could have been imposed under section 6662.

Section 1.1502-36 provides rules for adjusting members' basis 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).

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
PLR-125309-20 3

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 reduce a member's basis in its loss shares of
subsidiary stock under §1.1502-36(d)(6)(i)(A) 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 and Company Official
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 75 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
returns 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 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 on, and control number (PLR-125309-20) 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.
PLR-125309-20 4

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 and Company Official. 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, copies of this letter are
being sent to your authorized representative.

                                            Sincerely,


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

cc: ---------------------
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