A parent company gets 75 days to file a late election waiving the net-operating-loss carryback into its former consolidated group

Plain-English summary

A group of companies left one consolidated tax group (their former parent's) and began filing their own consolidated return under a new common parent. When a corporation that carries net operating losses leaves an old group for a new one, the new group can elect to give up the right to carry those losses back to years when the corporation belonged to the old group. That election, under Treasury Regulation section 1.1502-21(b)(3)(ii)(B), has to be attached to the new group's return for the year of the move, but here it was never validly filed. The new parent asked the IRS for more time under the section 301.9100-3 relief rules. Because the filing deadline is set by regulation, the IRS can extend it when the taxpayer acted reasonably and in good faith and relief would not harm the government. The IRS found those conditions met (the request came in before the IRS spotted the problem) and granted a 75-day extension to file the election by amending the return, conditioned on the group's total tax not being lower than if the election had been timely made.

Ruling snapshot

• Question: Should a consolidated group get an extension of time to file a late section 1.1502-21(b)(3)(ii)(B) election to relinquish the net-operating-loss carryback to its former group?
• Outcome: Approved (75-day extension granted via section 9100 relief)
• Key authorities: IRC § 172; Treas. Reg. §§ 1.1502-21(b)(3)(ii)(B), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202232001                                             Third Party Communication: None
 Release Date: 8/12/2022                                       Date of Communication: Not Applicable
 Index Number: 9100.22-00
                                                               Person To Contact:
 ----------------------------------------------                -------------------, ID No. -----------------
 ----------------                                              Telephone Number:
 ------------------------                                      --------------------
 -------------------------------------                         Refer Reply To:
                                                               CC:CORP:B05
                                                               PLR-100193-22
                                                               Date:
                                                               May 19, 2022




Legend

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

FormerParent                                = -----------------------------------
                                              -----------------------

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

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

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

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


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

This letter responds to a letter dated December 20, 2021, requesting, on behalf of
Parent, an extension of time under §301.9100-3 of the Procedure and Administration
Regulations to file an election. The extension is being requested for Parent to file an
election under §1.1502-21(b)(3)(ii)(B) of the Income Tax Regulations to relinquish, with
respect to all consolidated net operating losses ("CNOLs") attributable to Parent and its
subsidiaries ("Subsidiaries"), the portion of the carryback period for which Parent and
Subsidiaries were members of FormerParent's consolidated group (the "Election"). The
material information submitted for consideration is summarized below.
PLR-100193-22                                2

Parent and Subsidiaries were members of the FormerParent consolidated group (the
"FormerParent Group") and were included in the consolidated federal income tax return
of the FormerParent Group. On Date 1, Parent and Subsidiaries deconsolidated from
the FormerParent Group. Parent and Subsidiaries filed a consolidated federal income
tax return with Parent as the common parent (the "Parent Group"), for the taxable year
ending Date 2.

Section 1.1502-21(b)(3)(ii)(B) required the Election to be filed with Parent Group's
consolidated return for the taxable year ending Date 2, but for various reasons, a valid
Election was not filed. Subsequently, this request was submitted, under §301.9100-3,
for an extension of time to file the Election. It has been represented that no portion of
any consolidated net operating loss ("CNOL") of the Parent Group for the tax year
ending Date 2, or any subsequent year, has been carried back, or will be carried back,
to a separate return year (within the meaning of §1.1502-1(e)) of any member of the
Parent Group.

Section 1.1502-21(b)(3)(ii)(B) provides that if one or more members of a consolidated
group become members of another consolidated group, the acquiring consolidated
group may elect to relinquish, with respect to all CNOLs attributable to the member, the
portion of the carryback period for which the corporation was a member of another
group. This election is available provided that any other corporation joining the
acquiring group that was affiliated with the member immediately before it joined the
acquiring group is also included in the waiver. This election is not a yearly election and
applies to all losses that would otherwise be subject to a carryback to a former group
under section 172. The election is made in a separate statement entitled "THIS IS AN
ELECTION UNDER SECTION 1.1502-21(b)(3)(ii)(B) TO WAIVE THE PRE-[insert first
taxable year for which the member (or members) was not a member of another group]
CARRYBACK PERIOD FOR THE CNOLs attributable to [insert names and employer
identification number of members]." Section 1.1502-21(b)(3)(ii)(B) provides that the
statement must be filed with the acquiring consolidated group's original income tax
return for the year the corporation (or corporations) became a member.

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 Parent 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
certain 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
PLR-100193-22                                  3

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 the regulations (i.e., §1.1502-
21(b)(3)(ii)(B)). Therefore, the Commissioner has discretionary authority under
§301.9100-3 to grant an extension of time for Parent to file the Election, provided Parent
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, Company Official, and
Tax Professional explain the circumstances that resulted in the failure to timely file a
valid Election. The information 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 has established that it acted reasonably and in good faith in failing
to timely file the Election, the requirements of §§301.9100-1 and 301.9100-3 are
satisfied, and granting relief will not prejudice the interests of the government.
Accordingly, 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 §1.1502-21(b)(3)(ii)(B). The Parent
Group's return must be amended to attach the election statement required by §1.1502-
21(b)(3)(ii)(B). A copy of this letter must be attached to any income tax return to which
it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this
requirement by attaching a statement to their return that provides the date on, and
control number (PLR-100193-22) of, the letter ruling.

The above extension of time is conditioned on the Parent Group's tax liability (if any)
being not 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 Parent Group's 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.

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, a copy of this letter is
PLR-100193-22                               4

being sent to your authorized representative.

                                         Sincerely,


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




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