IRS grants 60 more days to file a late Form 3115 for a foreign subsidiary's accounting-method change

Plain-English summary

A consolidated group's parent wanted to change the functional currency of a controlled
foreign corporation's foreign business unit, an accounting-method change made by
attaching Form 3115 to a timely filed return under the automatic-change procedures of
Rev. Proc. 2015-13. Because of a mix-up, the parent never e-filed its Form 7004
extension, so its return (with the Form 3115 attached) came in late, which made the
Form 3115 untimely too. After discovering the problem, the parent asked the IRS for an
extension under the Section 301.9100-3 relief rules, which the IRS can grant when the
taxpayer acted reasonably and in good faith and relief will not prejudice the government.
The IRS granted 60 days to file the original Form 3115 and agreed to treat the earlier
attached filing as timely. The relief covers only the Form 3115, not the late return or the
missed Form 7004.

Ruling snapshot

• Question: Should the parent get a § 301.9100-3 extension to file the controlled foreign corporation's late Form 3115?
• Outcome: Approved (60-day extension; earlier filing treated as timely)
• Key authorities: IRC § 446(e); Treas. Reg. §§ 301.9100-1, 301.9100-3; Rev. Proc. 2015-13

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202215005                                             Third Party Communication: None
 Release Date: 4/15/2022                                       Date of Communication: Not Applicable
 Index Number: 9100.10-00
                                                               Person To Contact:
 --------------------------------------------                  ---------------------------, ID No. ---------------
 -----------------------------------------------------         -----------------
 ----------------------                                        Telephone Number:
  ----------------------------------                           --------------------
                                                               Refer Reply To:
                                                               CC:INTL:B05
                                                               PLR-115071-21
                                                               Date:
                                                               January 19, 2022




 CFC            =    ---------------------------------
 Country A      =    ----------
 Date 1         =    ------------------
 Date 2         =    ---------------------
 Date 3         =    --------------------------
 Date 4         =    ------------------
 Date 5         =    -----------------------
 Date 6         =    ---------------------
 Date 7         =    -------------------------
 Entity A       =    ----------------------------------------
 Parent         =    -----------------------------------------------------


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

       This letter ruling responds to a letter dated Date 1, and subsequent
correspondence, submitted by Parent. In that letter, Parent requests the consent of the
Commissioner of Internal Revenue (Commissioner) to grant an extension of time
pursuant to §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration
Regulations to file the original Form 3115, Application for Change in Accounting
Method, on behalf of CFC. Parent should have filed the original Form 3115 pursuant to
section 6.03(1)(a)(i)(A) of Rev. Proc. 2015-13, 2015-5 I.R.B. 419, 432, on behalf of
CFC, for the taxable year beginning Date 2, and ending Date 3. This letter ruling is
being issued electronically as permissible under section 7.02(5) of Rev. Proc. 2021-1,
2021-1 I.R.B. 1, 33.

                                                     FACTS

        Parent represents that the facts are as follows.
PLR-115071-21                                2

       Parent is the common parent of a consolidated group. Parent files a consolidated
federal income tax return on a calendar year basis. Parent uses an overall accrual
method of accounting. CFC, a controlled foreign corporation of Parent, has a qualified
business unit (QBU) operating in Country A. Starting with the taxable year beginning
Date 2, Parent wanted to change the functional currency of QBU. Parent believes that
this change in method of accounting could be implemented under the automatic change
procedures of Rev. Proc. 2015-13. Thus, in accord with the automatic change
procedures of Rev. Proc. 2015-13, Parent should have completed the required original
of the Form 3115, reflecting the desired accounting method change, and attached the
original to Parent's timely filed consolidated federal income tax return for the taxable
year beginning Date 2, and ended Date 3. See section 6.03(1)(a)(i) of Rev. Proc. 2015-
13, 2015-5 I.R.B. 419, 432.

       Further, in accord with the automatic change procedures of Rev. Proc. 2015-13,
a copy of the original of the Form 3115, with an original signature or a photocopy of the
original signature, should have been timely filed with the appropriate office of the
Internal Revenue Service (IRS). See section 6.03(1)(a)(i) of Rev. Proc. 2015-13, 2015-
5 I.R.B. at 432.

         Parent's consolidated federal income tax return for the taxable year beginning
Date 2, and ending Date 3, was due on Date 4, without extensions. Parent was unable
to file its consolidated federal income tax return by Date 4, so it intended to request an
extension of time to file its consolidated federal income tax return to Date 5. However,
due to an extraordinary series of events, Parent inadvertently failed to timely e-file Form
7004, Application for Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns, for the taxable year beginning Date 2, and ending Date
3, to extend the due date for its federal tax return.

      Parent also prepared Forms 7004 and federal income tax returns for its non-
consolidated affiliates, including Entity A.

      Parent filed its consolidated federal income tax return for the taxable year
beginning Date 2, and ending Date 3, on Date 6. Parent attached to this filed return the
Form 3115 at issue. Parent also filed the signed copy of the Form 3115 at issue with
the Ogden, Utah office of the IRS on Date 6.

         Parent was unaware that its Form 7004 had not been filed at the time it filed its
consolidated federal income tax return for the taxable year beginning Date 2, and
ending Date 3. Subsequently, Parent received a notice from the IRS, dated Date 7,
regarding the late filing of a Form 5471, Information Return of U.S. Persons With
Respect to Certain Foreign Corporations, with respect to one of Parent's
nonconsolidated affiliates. Upon receiving this notice, Parent realized that its Form 7004
for its consolidated federal income tax return also had not been processed properly.
Parent then promptly filed this request to obtain an extension of time pursuant to §§
301.9100-1 and 301.9100-3 to file Taxpayer’s original Form 3115.
PLR-115071-21                                3

      As a result of Parent's failure to timely file Form 7004 for the taxable year
beginning Date 2, and ending Date 3, the original Form 3115 was attached to a federal
income tax return for that taxable year that was not timely filed as required by section
6.03(1)(a)(i) of Rev. Proc. 2015-13.


                                 RULING REQUESTED

         Parent requests an extension of time pursuant to §§ 301.9100-1 and 301.9100- 3
to file the original Form 3115 described above for CFC for the taxable year beginning on
Date 2, and ending on Date 3.

LAW AND ANALYSIS

       Rev. Proc. 2015-13, as clarified and modified by Rev. Proc. 2015-33, and as
modified by Rev. Proc. 2017-59, and by section 17.02 of Rev. Proc. 2016-1, provides
the automatic change procedures and the non-automatic change procedures by which a
taxpayer may obtain consent to change its methods of accounting. Pursuant to section
9 of Rev. Proc. 2015-13, a taxpayer that complies with all the applicable provisions of
Rev. Proc. 2015-13 and implements the change in method of accounting on its federal
income tax return for the requested year of change to which the original Form 3115 is
attached pursuant to section 6.03 of Rev. Proc. 2015-13, has obtained the consent of
the Commissioner of Internal Revenue to change its method of accounting under §
446(e) and the regulations thereunder.

        Section 6.03(1)(a)(i) of Rev. Proc. 2015-13 provides that a taxpayer changing a
method of accounting under the automatic change procedures of Rev. Proc. 2015-13
must complete and file a Form 3115 in duplicate. The original must be attached to the
taxpayer's timely filed (including any extensions) original federal income tax return for
the year of change, and a signed copy of the original Form 3115 must be filed with the
appropriate office of the IRS no earlier than the first day of the requested year of change
and no later than when the original Form 3115 is filed with the federal income tax return
for the requested year of change.

       Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
to make certain regulatory elections. 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 an election.

        Section 301.9100-3 provides extensions of time for making elections that do not
meet the requirements of § 301.9100-2. Section 301.9100-3(a) provides that requests
for relief subject to § 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 the granting of relief will not prejudice the interests of the
Government.
PLR-115071-21                                 4


       Section 301.9100-3(c)(2) imposes special rules for accounting method regulatory
elections. This section provides, in relevant part, that the interests of the Government
are deemed to be prejudiced except in unusual and compelling circumstances when the
accounting method regulatory election for which relief is requested is subject to the
procedure described in § 1.446-1(e)(3)(i) or the relief requires an adjustment under §
481(a) (or would require an adjustment under § 481(a) if the taxpayer changed to the
accounting method for which relief is requested in a taxable year subsequent to the
taxable year the election should have been made).

                                      CONCLUSION

       Based solely on the facts and representations submitted, we conclude that the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly,
Parent is granted an extension of time of 60 days from the date of this letter to file the
original of the Form 3115 changing the CFC’s method of accounting, beginning for the
taxable year beginning Date 2, and ended Date 3.

      In this regard, we will consider the filing of the original Form 3115 with Parent's
consolidated federal income tax return for the taxable year beginning Date 2, and
ending Date 3, that was filed on Date 6, to be timely made.

       Except as expressly set forth above, we express no opinion concerning the tax
consequences of the facts described above under any other provision of the Code or
regulations. Specifically, no opinion is expressed or implied concerning whether (1) the
accounting method change CFC has made is eligible to be made under the automatic
change procedures of Rev. Proc. 2015-13 or under Rev. Proc. 2019-43, 2019-48 I.R.B.
1107; (2) CFC otherwise meets the requirements of Rev. Proc. 2015-13 to make the
accounting method change using the automatic change procedures of Rev. Proc. 2015-
13; or (3) QBU meets the conditions under §1.985-4(b) to change its functional
currency.

      Further, this letter ruling does not grant any extension of time for the filing of
Parent's Form 7004 or its consolidated federal income tax return for the taxable year
beginning Date 2, and ending Date 3.

       The ruling contained in this letter ruling is based upon facts and representations
submitted by Parent with an accompanying penalty of perjury statement executed by
the appropriate party. While this office has not verified any of the material submitted
in support of this request for an extension of time to file the required Form 3115, all
material is subject to verification on examination.

      This letter ruling is directed only to Parent, who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.
PLR-115071-21                                    5

        In accordance with the power of attorney, we are sending copies of this letter
ruling to Parent's authorized representatives. We are also sending a copy of this letter
ruling to the appropriate IRS operating division official.

                                                     Sincerely,



                                                     Peter Merkel
                                                     Branch Chief, Branch 5
                                                     Office of Associate Chief Counsel
                                                     (International)


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