9100 relief to file a late election opting out of the Section 382(l)(5) bankruptcy rule

Plain-English summary

When a company with tax losses changes ownership, Section 382 usually limits how much of those losses the new owner can use each year. A special rule, Section 382(l)(5), can apply instead when the ownership change happens in bankruptcy, and a company is allowed to elect out of that special rule if it prefers the ordinary Section 382 limitation. Here, a parent company acquired a loss corporation whose ownership changed while it was in a Chapter 11 (title 11) case, and the parent meant to file the election under Treasury Regulation Section 1.382-9(i) to opt out of Section 382(l)(5), but missed the deadline because a tax professional it relied on did not make or advise the election. Under Treasury Regulation Section 301.9100-3, the IRS can grant more time for a missed regulatory election if the taxpayer acted reasonably and in good faith and relief will not prejudice the government. Finding those standards met and that the request came before the IRS caught the failure, the IRS granted 75 days to file the election by amended return, conditioned on the group's total tax not being lower than if the election had been timely made.

Ruling snapshot

• Question: May a parent company get an extension of time to file a late election under Treas. Reg. § 1.382-9(i) not to have Section 382(l)(5) apply to a bankruptcy ownership change?
• Outcome: approved (75-day extension granted)
• Key authorities: IRC § 382(l)(5), (l)(5)(G); Treas. Reg. § 1.382-9(i); Treas. Reg. §§ 301.9100-1, -3

Full text (IRS public release)

 Internal Revenue Service                                         Department of the Treasury
                                                                  Washington, DC 20224

 Number: 202503010                                                Third Party Communication: None
 Release Date: 1/17/2025                                          Date of Communication: Not Applicable
 Index Numbers: 9100.22-00, 382.00-00
                                                                  Person To Contact:
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 -------------------------                                        Refer Reply To:
                                                                  CC:CORP:1
                                                                  PLR-109766-24
                                                                  Date:
                                                                  October 21, 2024




Legend

Parent                     =        ---------------------------------------------------------------------------------
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Lossco                     =        ---------------------------------------------------------------------------------
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Former Parent              =        ---------------------------------------------------------------------------------
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Date1                      =        ---------------------------

Date2                      =        ------------------

Company Officials =                 ---------------------------------------
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Tax Professionals          =        ---------------------------------------
PLR-109766-24                                     2

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

This letter responds to a letter dated May 23, 2024, submitted on behalf of Parent,
requesting an extension of time under §301.9100-3 of the Procedure and Administration
Regulations to file an election under §1.382-9(i) of the Income Tax Regulations not to
have the provisions of section 382(l)(5) apply to an ownership change in a title 11 or
similar case (the “Election”). The material information submitted is summarized below.

Parent is the common parent of an affiliated group of corporations that files consolidated
federal income tax returns (“Parent Group”). As a result of a transaction on Date 1,
Parent acquired Lossco (a loss corporation within the meaning of section 382(k)(1)) and
Lossco underwent an ownership change as defined in section 382(g). Immediately
before the ownership change on Date 1, Lossco and subsidiaries of Lossco were under
the jurisdiction of a court in a title 11 case. Prior to joining the Parent Group, Lossco
and subsidiaries of Lossco had been members of the Former Parent consolidated
group.

Section 382(l)(5) provides that if certain requirements are met, section 382(a) shall not
apply to an ownership change. If section 382(l)(5) applies, certain limitations are placed
on a corporation.

Section 382(l)(5)(G) provides that a new loss corporation (defined in section 382(k)(3))
may elect, subject to such terms and conditions as the Secretary may prescribe, not to
have the provisions of section 382(l)(5) apply.

The Election was required to be filed by the due date (including any extensions of time)
of Parent Group’s tax return for the taxable year ending Date 2, but for various reasons
a valid Election was not filed. After the due date for the Election, it was discovered that
the Election had not been filed. Subsequently, this request was submitted, under
§301.9100-3, for an extension of time to file the Election. Parent has represented that it
is not seeking to alter a return position for which an accuracy-related penalty has been
or could be 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
PLR-109766-24                                  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).

In this case, the time for filing the Election is fixed by the regulations (i.e., §1.382-9(i)).
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.

The information, affidavits, and representations submitted by Parent, Company Officials,
and Tax Professionals 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, and
that Parent reasonably relied on a qualified tax professional who failed to make, or
advise Parent to make, the Election. See §301.9100-3(b)(1)(i) and (v).

Based on the facts and information submitted, including the representations made, we
conclude that Parent 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, an extension of time is granted
under §301.9100-3, until 75 days from the date on this letter, for Parent to file the
Election. Parent should file the Election by filing an amended return for Parent Group
for the taxable year ending Date 2 and attaching the statement described in §1.382-9(i).
A copy of this letter should be attached to the Election statement. 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-109766-
24) of, this letter ruling.

The above extension of time is conditioned on the taxpayer’s (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 taxpayer’s tax
liability for the years involved. A determination thereof will be made upon audit of the
federal income tax returns involved.
PLR-109766-24                                    4

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. For purposes of granting relief under §301.9100-3, we relied on certain
statements and representations made by Parent, Company Officials, and Tax
Professionals. 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 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, copies of this letter are
being sent to your authorized representatives.

                                           Sincerely,


                                           _________________
                                           Thomas Ian Russell
                                           Chief, Branch 1
                                           Office of Associate Chief Counsel (Corporate)

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