75-day extension to elect apportionment of a consolidated section 382 limitation to a deconsolidating subgroup

Plain-English summary

Section 382 limits how much of a company's built-up losses can be used each year after an ownership change. When a subgroup that carries such a limitation leaves a consolidated group, Treas. Reg. § 1.1502-95(c) lets the old group's common parent elect to apportion all or part of the consolidated section 382 limitation to the departing subgroup, but the election has to be filed on time by both the old parent and the departing member. Here a subgroup (Corp1 and its subsidiaries) deconsolidated from a parent group and then filed its own consolidated return with Corp1 as the new common parent, and both parents missed the deadline to file the apportionment election. Under the section 301.9100-3 late-election rules, the IRS found the parents acted reasonably and in good faith, the request was filed before the IRS discovered the failure, and relief would not prejudice the government, so it granted a 75-day extension to file the election by amending their returns. The relief is conditioned on the election not lowering the taxpayers' aggregate tax liability compared with a timely election (accounting for the time value of money), and penalties and interest, if any, still apply.

Ruling snapshot

• Question: May the parents of consolidated groups get more time to make the Treas. Reg. § 1.1502-95(c) election apportioning a consolidated section 382 limitation to a deconsolidating subgroup?
• Outcome: approved
• Key authorities: IRC § 382; Treas. Reg. § 1.1502-95(c) and (f); Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                         Department of the Treasury
                                                                  Washington, DC 20224

 Number: 202229005                                                Third Party Communication: None
 Release Date: 7/22/2022                                          Date of Communication: Not Applicable
 Index Numbers: 9100.22-00, 1502.98-05
                                                                  Person To Contact:
 ----------------------                                           ------------------, ID No. -----------------
 ------------------------------                                   Telephone Number:
 -----------------------------------                              --------------------
 ---------------------------------                                Refer Reply To:
                                                                  CC:CORP:1
                                                                  PLR-100567-22
                                                                  Date:
                                                                  April 21, 2022




Legend

Parent                    =        ------------------------------
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Corp1                     =        ----------------------------
                                   -------------------------------
                                   -----------------------

Date1                     =        --------------------------

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

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

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


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

This letter responds to a letter dated December 14, 2021, submitted on behalf of Parent
and Corp1, requesting an extension of time under §301.9100-3 of the Procedure and
Administration Regulations to file an election. Parent and Corp1 are requesting an
extension of time to file an election under §1.1502-95(c) of the Income Tax Regulations
to apportion all or any part of a consolidated section 382 limitation to the Corp1 Group
PLR-100567-22                                   2

(defined below) (the "Election"). The material information submitted for consideration is
summarized below.

Parent is the common parent of a consolidated group (the Parent Group). Prior to
Date1, the Parent Group included Corp1 and its subsidiaries (the Corp1 Subgroup). On
Date1, the Corp1 Subgroup deconsolidated from the Parent Group. At that time, the
Parent Group had a section 382 limitation. After the deconsolidation, the members of
the Corp1 Subgroup filed a consolidated federal tax return with Corp1 as the common
parent (the Corp1 Group).

Under §1.1502-95(c), the common parent of a consolidated group may elect to
apportion all or any part of a consolidated section 382 limitation to a former member (or
loss subgroup) as well as all or any part of the loss group's net unrealized built-in gain to
a former member (or loss subgroup). The election is made following the procedures set
forth in §1.1502-95(f). Section 1.1502-95(f)(3) provides, in general, that the election
statement under §1.1502-95(f)(1)(i) must be filed by the common parent on or with its
income tax return for the taxable year in which the former member (or new loss
subgroup) ceases to be a member, and an identical statement must be included on or
with the first return of the former member (or the first return in which the former
member, or the members of a new loss subgroup, join) that is filed after the close of the
consolidated return year of the group of which the former member (or the members of a
new loss subgroup) ceases to be a member.

For various reasons, Parent and Corp1 failed to make the Election in a timely manner.
Parent and Corp1 have represented that they are not seeking to alter a return position
for which an accuracy-related penalty has been or could have been imposed under
section 6662.

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
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. 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).

In this case, the time for filing the Election is fixed by regulations (i.e., §1.1502-95(f)(3)).
Therefore, the Commissioner has discretionary authority under §301.9100-3 to grant an
extension of time for Parent and Corp1 to file the Election, provided they show that their
actions were reasonable and in good faith, the requirements of §§301.9100-1 and
PLR-100567-22                                 3

301.9100-3 are satisfied, and that granting relief will not prejudice the interests of the
government.

Information, affidavits, and representations submitted by Parent, Corp1, Company
Officials, and Tax Professional explain the circumstances that resulted in the failure to
timely file the Election. The submission establishes that the request for relief was filed
before the failure to make the Election was discovered by the Internal Revenue Service.
See §301.9100-3(b)(1)(i).

Based on the facts and information submitted, including the representations made, we
conclude that Parent and Corp1 have shown they 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, an extension of time is
granted under §301.9100-3, until 75 days from the date on this letter, for Parent and
Corp1 to file the Election. Parent and Corp1 should amend their returns to attach the
Election, following the requirements of §1.1502-95(f). A copy of this letter must be
attached to the returns. Alternatively, Parent and Corp1 may satisfy the requirement of
attaching a copy of this letter by attaching a statement to their returns that provides the
date on, and control number (PLR-100567-22) of, this letter ruling.

The above extension of time is conditioned on the taxpayers' 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 timely made (taking into account the time value of
money). No opinion is expressed as to the taxpayers' tax liability for the years involved.
A determination thereof will be made 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 aspect of any transaction or item discussed or referenced in
this letter. 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 or
regulations, or as to the tax treatment of any conditions existing at the time of, or effects
resulting from, filing the Election late that are not specifically set forth in the above
ruling.

For purposes of granting relief under §301.9100-3, we relied on certain statements and
representations made by Parent, Corp1, Company Officials, and Tax Professional under
penalties of perjury. However, the Director should verify all essential facts. In addition,
notwithstanding that an extension is granted under §301.9100-3 to file the Election,
penalties and interest that would otherwise be applicable, if any, continue to apply.

This ruling is directed only to the taxpayers 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
PLR-100567-22                               4

being sent to your authorized representatives.

                                     Sincerely,


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

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