IRS grants a consolidated group late relief to file a Form 3115 after a missed COVID-era extension

Plain-English summary

A corporate parent that files a consolidated return wanted to change its accounting
method under Section 451(b) by attaching Form 3115 to a timely filed return under the
automatic-change procedures of Rev. Proc. 2015-13. Its accountant said the Form 7004
extension had been e-filed, but because of COVID-19 disruptions it never went through,
so the return (and the attached Form 3115) came in late. After discovering the problem,
the parent asked the IRS for relief under the Section 301.9100-3 rules, which allow an
extension when the taxpayer acted reasonably and in good faith and relief will not
prejudice the government. Finding the taxpayer reasonably relied on staff and did not use
hindsight, the IRS granted the extension and deemed the already-attached Form 3115
timely filed for the parent and its subsidiaries. The ruling covers only the timeliness of the
Form 3115, not whether the method change itself was proper.

Ruling snapshot

• Question: Should the consolidated group get a § 301.9100-3 extension to file its late Form 3115 for a § 451(b) method change?
• Outcome: Approved (filing deemed timely)
• Key authorities: IRC § 451(b); 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: 202215006                                             Third Party Communication: None
Release Date: 4/15/2022                                       Date of Communication: Not Applicable
Index Number: 9100.00-00
                                                              Person To Contact:
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                                                              Refer Reply To:
                                                              CC:ITA:B02
------------------------                                      PLR-115075-21
-------------------------------------                         Date:
                                                              January 18, 2022




                                                  LEGEND

Taxpayer         =        ---------------------------------------------------------------------------------------
                          -------------------------
VP Tax           =        ----------------
Date 1           =        --------------------------
Date 2           =        ---------------------
Date 3           =        ------------------
Date 4           =        ---------------------
Date 5           =        -----------------------


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

This letter responds to Taxpayer’s submission dated July 21, 2021, and subsequent
correspondence dated October 20, 2021, requesting a private letter ruling granting
relief pursuant to Treas. Reg. §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations. Specifically, Taxpayer requests an extension of time to
file Form 3115, Application for Change in Accounting Method, for the taxable year
ending on Date 1.

This letter ruling is being issued electronically in accordance with section 7.02(5) of
Rev. Proc. 2021-1, 2021-1 I.R.B. 1, 35. A paper copy will not be mailed to
Taxpayer.
PLR-115075-21                              2

                                      FACTS

Based on Taxpayer’s representations and the affidavit of VP Tax the facts are as
follows:

Taxpayer, a domestic corporation, was the common parent of an affiliated group of
corporations, set forth in Appendix A, for the taxable year ending on Date 1.
Taxpayer is on a calendar year basis and uses an accrual method as its overall
method of accounting.

Taxpayer’s consolidated Federal income tax return for the taxable year ending on
Date 1 was due on Date 3 (without extensions). Taxpayer planned to file Form
7004, Application for Automatic Extension of Time to File Certain Business Income
Tax, Information, and Other Returns, before Date 3, as it had done in previous
years. Taxpayer’s tax department prepared and completed Form 7004 and
Taxpayer’s senior accountant was instructed to file the form electronically. The
senior accountant verbally told Taxpayer that the extension had been filed on or
about Date 2, which was before Date 3. However, due to extenuating
circumstances related to COVID-19, the extension was not filed.

Taxpayer proceeded as if its federal income tax return was due on Date 5 (the
extended deadline) and was not aware that Form 7004 had not been filed.
Taxpayer filed its consolidated Federal income tax return for the taxable year
ending on Date 1 on or about Date 4 (after Date 3). For the taxable year ending on
Date 1, Taxpayer wanted to change its method of accounting under § 451(b)(1)(A)
and thus attached to the return Form 3115, which reflected such a change.
Taxpayer believed this change in method of accounting could be implemented
under the automatic change procedures of Rev. Proc. 2015-13. Taxpayer
implemented the change in method of accounting under § 451(b)(1)(A) for the
taxable year ending on Date 1.

Sometime after the Date 4 filing, Taxpayer discovered that the Form 7004 was not
filed and determined that its return for the taxable year ending on Date 1 was not
timely filed (and thus Form 3115 was not timely filed as required). Shortly
thereafter, Taxpayer submitted this request seeking relief under Treas. Reg.
§§ 301.9100-1 and 301.9100-3. Taxpayer was not under examination for the
taxable year ending on Date 1 at the time this request was submitted.

                              LAW AND ANALYSIS

Rev. Proc. 2015-13, as clarified and modified by Rev. Proc. 2015-33, and as
modified by Rev. Proc. 2021-34, by Rev. Proc. 2021-26, by Rev. Proc. 2017-59,
and by section 17.02(b) and (c) 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
PLR-115075-21                                3

Rev. Proc. 2015-13, a taxpayer that complies with all the applicable provisions of
this revenue procedure 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 § 451(b) 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) 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 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that
do not meet the requirements of § 301.9100-2.

Treas. Reg. § 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer—

       (i)     Requests relief before the failure to make the regulatory election is
               discovered by the Service;
       (ii)    Failed to make the election because of intervening events beyond the
               taxpayer’s control;
       (iii)   Failed to make the election because, after exercising reasonable
               diligence, the taxpayer was unaware of the necessity for the election;
       (iv)    Reasonably relied on the written advice of the Service; or
       (v)     Reasonably relied on a qualified tax professional, and the professional
               failed to make, or advise the taxpayer to make, the election.

Under Treas. Reg. § 301.9100-3(b)(3), a taxpayer will not be considered to have
acted reasonably and in good faith if the taxpayer—

      (i)      Seeks to alter a return position for which an accuracy-related penalty
               could be imposed under § 6662 at the time the taxpayer requests
PLR-115075-21                                 4

               relief and the new position requires a regulatory election for which
               relief is requested;
      (ii)     Was fully informed of the required election and related tax
               consequences, but chose not to file the election; or
      (iii)    Uses hindsight in requesting relief. If specific facts have changed
               since the original deadline that make the election advantageous to a
               taxpayer, the Service will not ordinarily grant relief.

Treas. Reg. § 301.9100-3(c) provides that the Service will grant a reasonable
extension of time only when the interests of the Government will not be prejudiced
by the granting of relief. The interests of the Government are prejudiced if granting
relief would result in a taxpayer having a lower tax liability in the aggregate for all
taxable years affected by the election than the taxpayer would have had if the
election had been timely made.

Section 301.9100-3(c)(2) provides special rules for accounting method regulatory
elections. The interests of the government are deemed to be prejudiced except in
unusual and compelling circumstances if the accounting method regulatory election
for which relief is requested:

       (i)     is subject to the procedure set forth in section 1.446-1(e)(3)(i) of this
               chapter (requiring advance written consent of the Commissioner);
       (ii)    requires an adjustment under section 481(a) (or would require an
               adjustment under section 481(a) if the taxpayer changed to the
               method of accounting for which relief is requested in a taxable year
               subsequent to the taxable year in which the election should have
               been made);
       (iii)   would permit a change from an impermissible method of accounting
               that is an issue under consideration by examination, an appeals
               office, or a federal court and the change would provide a more
               favorable method or more favorable terms and conditions than if the
               change were made as part of an examination; or
       (iv)    provides a more favorable method of accounting or more favorable
               terms and conditions if the election is made by a certain date or
               taxable year.

                                     CONCLUSION

Based on the facts and information submitted and the representations made, we
conclude that Taxpayer has acted reasonably and in good faith, and that the
granting of relief would not prejudice the interests of the Government. Accordingly,
Taxpayer has satisfied the requirements for the granting of relief, and Taxpayer is
granted an extension of time to file Form 3115 for the taxable year ending on Date

1. Having attached Form 3115 to Taxpayer’s late filed consolidated Federal
PLR-115075-21                                          5

 income tax return for the taxable year ending on Date 1, the filing is hereby deemed
 to be timely made for Taxpayer and its subsidiaries (listed in Appendix A).

 This ruling is based upon facts and representations submitted by the Taxpayer and
 accompanied by a penalty of perjury statement executed by an appropriate party as
 well as the supporting affidavit of VP Tax. This office has not verified any of the
 material submitted in support of the request for a ruling. However, as part of an
 examination process, the Service may verify the factual information,
 representations, and other data submitted.

 This ruling addresses the granting of Treas. Reg. § 301.9100-3 relief to file a Form
 3115 requesting a method change for the taxable year ending on Date 1.
 Specifically, we have no opinion, either express or implied, concerning whether
 Taxpayer is eligible to make the requested accounting method change or whether
 Taxpayer properly implemented the requested method change. We express no
 opinion regarding the tax treatment of the instant transaction under the provisions
 of any other sections of the Code or regulations that may be applicable, or
 regarding the tax treatment of any conditions existing at the time of, or effects
 resulting from, the instant transaction.

 This ruling 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, we are sending a
 copy of this letter to your authorized representatives.

                                                       Sincerely,




                                                       Ronald J. Goldstein
                                                       Senior Technician Reviewer, Branch 2
                                                       (Income Tax & Accounting)


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                                                 Appendix A

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