IRS cannot accept late election to waive NOL carryback

Plain-English summary

The IRS considered whether it could accept an election under section 172(b)(3) after the extended due date for the return reporting a net operating loss. It advised that the election deadline is statutory, so discretionary relief under Treas. Reg. § 301.9100-3 is unavailable. The automatic relief in Treas. Reg. § 301.9100-2 permits a late election only within its six-month corrective period. A taxpayer that misses the election may still carry the loss back by filing amended returns within the special limitation period in section 6511(d)(2).

Ruling snapshot

• Question: May the IRS accept a section 172(b)(3) election filed after the available automatic extension period?
• Outcome: Advice given, no discretionary extension is available
• Key authorities: IRC §§ 172(b)(3), 6511(d)(2); Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

ID:       CCA_2016031411175453
UILC:     172.01-00, 9100.00-00

Number: 201616009
Release Date: 4/15/2016
From:
Sent: Monday, March 14, 2016 11:17:54 AM
To:
Cc: ---------------------
Bcc:
Subject: Your question


------,

You have asked us whether the IRS has discretion to accept a section 172(b)(3) election that was not
filed by the extended due date of the tax return which reported the net operating loss (NOL). Our
response is no, the IRS does not have discretion to accept such a late-filed election. Although a taxpayer
may not make a late section 172(b)(3) election, a taxpayer may still be able to carryback the NOL if
amended returns are filed within the limitation period stated in Internal Revenue Code (IRC) section
6511(d)(2).

IRC section 173(b)(3) allows a taxpayer to elect to relinquish the carryback period and carryforward the
NOL without first carrying it back to prior years. Section 173(b)(3) explains that a taxpayer must make
this election by the due date (including extensions) for filing the return for the taxable year of the NOL
for which the election is to be in effect. If a taxpayer fails to timely make certain elections under the
IRC, then the regulations under Treasury Regulation section 301.9100 may provide relief.

Treas. Reg. Section 301.9100-1(a) states that the regulations under sections 301.9100-1, 301-9100-2,
and 301.9100-3 provide the standards used to determine whether or not an extension of time to make a
regulatory election will be granted. Treas. Reg. § 301.9100-1(b) defines “statutory election” as an
election whose due date is prescribed by statute. Alternatively “regulatory election” means “an election
whose due date is prescribed by a regulation published in the Federal Register, or a revenue ruling,
revenue procedure, notice or announcement published in the Internal Revenue Bulletin. Treas. Reg.
section 301.9100-1(b). In this case, the time for making the section 172(b)(3) election is stated in the
statute, making it a statutory election.

Section 301.9100-2(b) grants an automatic six month extension of time to make a statutory or
regulatory election if the due date of the election is the due date of the return or the due date of the
return including extensions, provided the taxpayer timely filed its return for the year the election should
have been made and the taxpayer takes corrective action within that 6-month period. Thus, under this
regulation, if a taxpayer timely filed its return for the year, then the taxpayer can make the election late,
but the election must be made no later than the extended due date of the return.

                                                                  2

Alternatively, section 301.9100-3 provides extensions of time for making regulatory elections that do
not meet the requirements of section 301.9100-2. Under this regulation, a taxpayer requests relief to
make a late regulatory election by means of a private letter ruling. Unfortunately, this relief is not
available for statutory elections such as a section 172(b)(3) election. Accordingly, the IRS does not
consider requests for a private letter ruling to make a late section 172(b)(3) election because, as stated
above, the IRS has no authority to allow the taxpayer to make a section 172(b)(3) election filed more
than 6 months after the due date of the tax return, excluding extensions. Again, even if the taxpayer is
precluded from making this election, the taxpayer is not precluded from carrying the NOL back on a
timely filed amended return. We have coordinated this response with the subject matter experts, and
they agree with the analysis. Please let me know if you have any further questions.

Best Regards,
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