Consolidated group received 75 more days to make a unified-loss stock-basis election

Plain-English summary

A consolidated group transferred a loss subsidiary, causing that subsidiary and its lower-tier companies to leave the group. The group could have elected under Treas. Reg. § 1.1502-36(d)(6)(i)(A) to reduce the parent member’s basis in the transferred subsidiary stock and thereby reduce or avoid attribute reduction, but it missed the election deadline. After the former parent and its direct subsidiary ceased to exist, a substitute agent sought relief for the group. Affidavits and representations showed that the request was filed before the IRS discovered the missed election and that the group acted reasonably and in good faith. The IRS granted 75 days to file the irrevocable election, conditioned on the group’s aggregate tax liability not being lower than if the election had been timely made. The ruling does not determine whether the group qualifies substantively for the election or the proper amount of stock-basis reduction.

Ruling snapshot

• Question: Should the consolidated group receive additional time to elect stock-basis reduction under Treas. Reg. § 1.1502-36(d)(6)(i)(A)?
• Outcome: Approved
• Key authorities: Treas. Reg. §§ 1.1502-36(d)(6), 1.1502-36(e)(5), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202515008 Third Party Communication: None
Release Date: 4/11/2025 Date of Communication: Not Applicable
Index Number: 1502.00-00, 1502.36-00,
9100.00-00, 9100.22-00 Person To Contact:
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----------------------------------------------------- Refer Reply To:
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------------------------------------ Date:
January 14, 2025

Legend:

Agent = ------------------------------------------------------------------------------------
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Parent = ------------------------------------------------------------------------------------
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Sub 1 = ------------------------------------------------------------------------------------
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Sub 2 = ------------------------------------------------------------------------------------
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Date 1 = -------------------------

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

Company Official = ------------------------------------------------------------------------------------
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Tax Professional = ------------------------------------------------------------------------------------
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PLR-113236-24 2

Dear --------:

This letter responds to your authorized representatives' letter dated July 22, 2024,
submitted by Agent on behalf of Parent, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to make an election
under § 1.1502-36(d)(6)(i)(A) to reduce Sub 1's adjusted basis in the stock of Sub 2 by
its attribute reduction amount (the “Election”). The material information submitted for
consideration is summarized below.

During the taxable year including Date 1, Parent was the common parent of a
consolidated group (the “Parent Group”) that included Parent, Sub 1, Sub 2, and
subsidiaries owned directly and indirectly by Sub 2. Parent owned all the stock of Sub 1
and Sub 1 owned all the stock of Sub 2. As a result of a transaction on Date 1, Sub 2
and its subsidiaries ceased to be members of the Parent Group.

An election under § 1.1502-36 by Parent with respect to Sub 1’s transfer (within the
meaning of § 1.1502-36(f)(10)) of Sub 2's stock was due by the due date (including
extensions) of Parent Group's consolidated return for the taxable year including Date 1.
However, for various reasons, no election was made. On Date 2, Sub 1 and Parent
ceased to exist. Agent is designated to act as substitute agent for Parent for the taxable
year of the Parent Group that includes Date 1. After discovering the missed Election,
this request was submitted, under § 301.9100-3, for an extension of time to file the
Election.

It has been represented that no member of Parent Group is seeking to alter a return
position for which an accuracy-related penalty has been or could have been imposed
under section 6662.

Section 1.1502-36 provides rules for adjusting a members' basis in stock of a subsidiary
(S) and for reducing S's attributes when a member (M) transfers a loss share of S stock.
Section 1.1502-36(a)(1).

Section 1.1502-36(d) provides rules to reduce attributes of S and its lower-tier
subsidiaries to the extent they duplicate a net loss on shares of S stock transferred by
members in one transaction. Section 1.1502-36(d)(6)(i) provides that notwithstanding
the general operation of § 1.1502-36(d), the parent of a consolidated group (P) may
elect to reduce the potential for loss duplication, and thereby reduce or avoid attribute
reduction. Under this provision, P may elect: (A) to reduce all or any portion (including
any portion in excess of a specified amount) of members' bases in transferred loss
shares of S stock; (B) to reattribute all or any portion (including any portion in excess of
a specified amount) of S's Category A, Category B, and Category C attributes (each as
defined in § 1.1502-36(d)(4)), to the extent they would otherwise be subject to reduction
under § 1.1502-36(d); or (C) any combination thereof. Section 1.1502-36(d)(6)(ii)
PLR-113236-24 3

provides that an election to reduce loss duplication under § 1.1502-36(d)(6) is made in
the manner provided in § 1.1502-36(e)(5).
Section 1.1502-36(e)(5) states that the elections provided by § 1.1502-36 are
irrevocable and made in a statement entitled “Section 1.1502-36 Statement” that must
be included on or with the group's timely filed return (original or amended, if filed by the
due date of the return, including extensions) for the taxable year of the transfer of the
subsidiary stock to which the election relates.

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
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).

The election by a consolidated group to reduce a member's basis in its loss shares of
subsidiary stock under § 1.1502-36(d)(6)(i)(A) is a regulatory election. Therefore, the
Commissioner has discretionary authority under § 301.9100-3 to grant an extension of
time for the Parent Group to file the Election, provided it establishes to the satisfaction
of the Commissioner 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.

Information, affidavits, and representations submitted by Agent, 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 timely 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 affidavits submitted and the
representations made, we conclude that the Parent Group 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, provided that the Parent Group qualifies substantively to file the Election,
an extension of time is granted under § 301.9100-3, until 75 days from the date on this
letter, for the Election to be filed.
PLR-113236-24 4

Agent must file the Election in accordance with § 1.1502-36(e)(5). The Parent Group's
federal income tax return for the tax year including Date 1 (original or amended) must
include the election statement required by § 1.1502-36(e)(5). A copy of this letter must
be attached to the election statement. Alternatively, if the Parent Group files its returns
electronically, Agent may satisfy the requirement of attaching a copy of this letter by
attaching a statement to its return that provides the date and control number (PLR-
113236-24) of this letter ruling.

The above extension of time is conditioned on the Parent Group's 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 made timely (taking into account the time value of
money). We express no opinion as to the Parent Group's tax liability for the years
involved. A determination thereof will be made by the Director's office 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 item discussed or referenced in this letter. In particular, we
express no opinion with respect to whether the Parent Group qualifies substantively to
make the Election or the amount of stock basis reduction applicable. 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 and regulations, or as to the tax
treatment of any conditions existing at the time of, or resulting from, filing the Election
late that are not specifically set forth in this letter.

For purposes of granting relief under § 301.9100-3, we have relied on certain
statements and representations made by Agent, Company Official, and Tax
Professional. The Director, however, should verify all essential facts. In addition,
notwithstanding that an extension is granted under § 301.9100-3 to file the Election, any
penalties and interest that would otherwise be applicable 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.
PLR-113236-24 5

Pursuant to the power of attorney on file with this office, a copy of this letter is being
sent to your authorized representatives.

                                                   Sincerely,


                                                   Justin Kellar
                                                   Justin O. Kellar
                                                   Chief, Branch 4
                                                   Office of Associate Chief Counsel (Corporate)

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