Consolidated group receives 90 days to make a late unified-loss election

Plain-English summary

A consolidated group failed to elect under Treasury Regulation Section 1.1502-36(d)(6)(i)(A) to reduce the parent's basis in transferred loss shares of a subsidiary by the attribute-reduction amount. The parent later dissolved, and the subsidiary acted as substitute agent for the group. The group had treated the election as made, and the failure resulted from reasonable reliance on a qualified tax professional who did not make or advise it to make the election. The IRS found that the group acted reasonably and in good faith and granted 90 days to file the election and amend the relevant consolidated return. Relief is conditioned on aggregate tax liability not being lower than it would have been with a timely election, taking the time value of money into account.

Ruling snapshot

• Question: May the consolidated group file a late election to reduce stock basis under Treasury Regulation Section 1.1502-36(d)(6)(i)(A)?
• Outcome: Approved, with 90 days to file
• Key authorities: Treas. Reg. §§ 1.1502-36(d)(6) and (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: 202138004                                               Third Party Communication: None
 Release Date: 9/24/2021                                         Date of Communication: Not Applicable
 Index Number: 9100.22-00, 1502.36-00
                                                                 Person To Contact:
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 ------------------------                                        ID No. -----------------
 ----------------------                                          Telephone Number:
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                                                                 Refer Reply To:
                                                                 CC:CORP:5
                                                                 PLR-102948-21
                                                                 Date:
                                                                 June 29, 2021




Legend

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

Sub                       =        ------------------------
                                   -----------------------

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

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

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

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


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

This letter responds to your authorized representatives’ letter dated January 30, 2021,
requesting an extension of time under §301.9100-3 of the Procedure and Administration
Regulations to make an election. Specifically, the extension is being requested to file
an election under §1.1502-36(d)(6)(i)(A) of the Income Tax Regulations for the taxable
year including Date 1 to reduce Parent’s adjusted basis in the stock of Sub by its
attribute reduction amount (the “Election”). The material information submitted for
consideration is summarized below.
PLR-102948-21                                 2


During the taxable year including Date 1, Parent was the common parent of a
consolidated group (the “Parent Group”) that included Parent and Sub. As a result of a
transaction on Date 1, Parent and Sub ceased to be members of the same affiliated
group.

An election under §1.1502-36 with respect to Parent's transfer (within the meaning of
§1.1502-36(f)(10)) of Sub's stock was due by the due date (including extensions) of
Parent Group's consolidated return for the taxable year including Date 1. However, for
various reasons, no election was made. On Date 2, Parent dissolved. Sub is
designated to act as substitute agent for the Parent Group for the taxable year of the
Parent Group including Date 1. After discovering the missed Election, this request was
submitted, under §301.9100-3, for an extension of time to file the Election.

It has been represented that no member of Parent Group is seeking to alter a return
position for which an accuracy-related penalty has been or could have been imposed
under section 6662. In addition, notwithstanding the missed Election, Parent and Sub
have treated the Election as having been made.

Section 1.1502-36 provides rules for adjusting a 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 provision, 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-102948-21                                 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). 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).

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 the Parent Group to file the Election, provided it 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 Sub, as substitute agent for the
Parent Group, Company Official, and Tax Professional explain the circumstances that
resulted in the failure to timely file a valid Election. The information establishes that
Parent reasonably relied on a qualified tax professional who failed to make, or advise
Parent to make, the Election, and that the request for relief was filed before the failure to
timely make the Election was discovered by the Internal Revenue Service. See
§301.9100-3(b)(1)(i), (v).

Based on the facts and information submitted, including the affidavits submitted and the
representations made, we conclude that the Parent Group 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, provided that the Parent Group qualifies substantively to file the Election,
an extension of time is granted under §301.9100-3, until 90 days from the date on this
letter, for the Election to be filed.

The Parent Group should file the Election in accordance with §1.1502-36(e)(5). The
Parent Group’s tax return for the tax year including Date 1 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 the Parent Group files its returns
electronically, it may satisfy the requirement of attaching a copy of this letter by
attaching a statement to the amended return that provides the date and control number
(PLR-102948-21) of this letter ruling.
PLR-102948-21                                  4

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 tax liability for the years
involved. A determination thereof will be made by the Director’s office upon audit of the
federal 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 the Parent Group qualifies substantively to
make the Election or the amount of stock basis reduction applicable. 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 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 this letter.

For purposes of granting relief under §301.9100-3, we have relied on certain statements
and representations made by Sub, as substitute agent for the Parent Group, Company
Official, and Tax Professional. 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.

Pursuant to the power of attorney on file with this office, a copy of this letter is being
sent to your authorized representative.

                                        Sincerely,



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



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