Consolidated group receives relief to make a late NOL carryback waiver

Plain-English summary

A consolidated corporate group failed to file a valid election waiving the carryback period for a consolidated net operating loss. The parent requested relief before the IRS discovered the failure and represented that the group had not carried, and would not carry, any part of the loss to an earlier consolidated return year. The IRS found that the parent reasonably relied on a qualified tax professional and acted reasonably and in good faith. It granted 60 days to amend the return and attach the required election, subject to a condition that aggregate tax liability would not be lower than if the election had been timely made.

Ruling snapshot

• Question: Could the consolidated group make a late election to relinquish the entire carryback period for its CNOL?
• Outcome: Approved, with 60 days to file and subject to an aggregate-tax-liability condition.
• Key authorities: IRC § 172(b)(3); Treas. Reg. §§ 1.1502-21 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201610010                                            Third Party Communication: None
Release Date: 3/4/2016                                       Date of Communication: Not Applicable
Index Number: 9100.22-00, 1502.21-00
                                                             Person To Contact:
----------------------------------------------               ----------------------------------, ID No. --------
----------------------------                                 ----------------
----------------------                                       Telephone Number:
-------------------------------                              ------------------
 -----------------------------------                         Refer Reply To:
                                                             CC:CORP:05
                                                             PLR-124446-15
                                                             Date:
                                                             November 23, 2015


Legend

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

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

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

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

Tax Professional 1              = -------------------------------------------------------------------------------
                                  -------------------------------------------------

Tax Professional 2              = -------------------------------------------------------------------------------
                                  --------------------------------------------------

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

We respond to a letter dated July 20, 2015, submitted on behalf of Parent, requesting
an extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure and
Administration Regulations to make an election. The extension is being requested for
Parent to make an election under § 1.1502-21(b)(3)(i) to relinquish the entire carryback
period for the Parent consolidated group’s consolidated net operating loss (“CNOL”) for
the tax year ending Date 1 (the “Election”). Additional information was submitted in a
letter dated November 12, 2015. The material information submitted for consideration is
summarized below.
PLR-124446-15                                2

Parent is the common parent of a consolidated group (“Parent Group”). Parent Group
sustained a CNOL in the tax year ending Date 1. The Election was required to be made
by Date 2, the date that the return for the tax year ending Date 1 was due (with
extension). However, for various reasons, a valid election was not filed. After Date 2, it
was discovered that a valid election had not been filed. Subsequently, this request was
submitted for an extension of time to file a valid election.

Parent has represented that Parent Group has not, and will not, carry any portion of the
CNOL to a prior consolidated return year of Parent Group. Parent has also represented
that no member of the consolidated group of which Parent was the common parent for
the tax year ending Date 1 had a separate return year, within the meaning of
§ 1.1502-1(e), at any time during the carryback period. Parent has further represented
that Parent Group is not seeking to alter a return position for which an accuracy-related
penalty has been or could be imposed under § 6662 at the time of the request for relief
and the new position requires or permits a regulatory election for which relief is
requested.

Section 1.1502-21(b)(3)(i) provides that a consolidated group may make an irrevocable
election under § 172(b)(3) to relinquish the entire carryback period with respect to a
CNOL for any consolidated return year. The election is made in a separate statement
entitled “THIS IS AN ELECTION UNDER § 1.1502-21(b)(3)(i) TO WAIVE THE ENTIRE
CARRYBACK PERIOD PURSUANT TO SECTION 172(b)(3) FOR THE [insert
consolidated return year] CNOLs OF THE CONSOLIDATED GROUP OF WHICH [insert
name and employer identification number of common parent] IS THE COMMON
PARENT.” Section 1.1502-21(b)(3)(i) also provides that the statement must be filed with
the group’s income tax return for the consolidated return year in which the loss arises.

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).

In this case, the time for filing the election is fixed by the regulations (i.e.,
§ 1.1502-21(b)(3)(i)). Therefore, the Commissioner has discretionary authority under
PLR-124446-15                                  3

§ 301.9100-1 to grant an extension of time for Parent to file the election, provided
Parent establishes 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 Parent, Company Official, Tax
Professional 1, and Tax Professional 2 explain the circumstances that resulted in the
failure to timely file a valid election. The information establishes that Parent reasonably
relied on a qualified tax professional who failed to make, or advise parent to make, the
Election, and 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)
and (iv).

Based on the facts and information submitted, including the representations made, we
conclude that Parent has shown 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
§ 301.9100-1, until 60 days from the date on this letter, for Parent to file the Election
with respect to the relinquishment of the entire carryback period for the CNOL for the
tax year ending Date 1, as described above.

The above extension of time is conditioned on the taxpayers’ (Parent and the members
of its consolidated group) 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 taxpayers’ 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.

Parent must file the Election in accordance with § 1.1502-21(b)(3)(i). Parent Group’s
return for the tax year ending Date 1 must be amended to attach the election statement
required by § 1.1502-21(b)(3)(i). A copy of this letter must be attached to the election
statement. Alternatively, if the Parent Group files its returns electronically, Parent may
satisfy this latter requirement by attaching a statement to its return that provides the
date and control number of this letter ruling.

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 the above ruling.

For purposes of granting relief under § 301.9100-1, we relied on certain statements and
representations made by Parent, Company Official, Tax Professional 1, and Tax
Professional 2. However, the Director should verify all essential facts. Moreover,
PLR-124446-15                                 4

notwithstanding that an extension is granted under § 301.9100-1 to file the election,
penalties and interest that would otherwise be applicable, if any, continue to apply.

This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

Pursuant to the power of attorney on file in the office, copies of this letter are being sent
to your authorized representatives.

                                       Sincerely,



                                        Ken Cohen
                                       Ken Cohen
                                       Senior Technician Reviewer, Branch 3
                                       Office of Associate Chief Counsel (Corporate)




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