Consolidated group receives more time to waive loss carryback

Plain-English summary

A consolidated corporate group incurred a consolidated net operating loss and intended to give up the loss carryback period. Its return was prepared consistently with that choice, but a valid election statement was not filed because a tax professional failed to make or recommend it. The group represented that it had not carried back any part of the loss and would not do so. The IRS found that the parent acted reasonably and in good faith and granted 60 days to file the election on an amended return. Relief was conditioned on the affected taxpayers' total tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: Should the consolidated-group parent receive more time to waive the entire carryback period for its consolidated net operating loss?
• Outcome: Approved, with 60 days to amend the return and file the election statement
• Key authorities: IRC § 172(b)(3); Treas. Reg. §§ 1.1502-21(b)(3)(i) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201628003                                              Third Party Communication: None
Release Date: 7/8/2016                                         Date of Communication: Not Applicable
Index Number: 1502.21-00, 172.01-00,
              9100.22-00                                       Person To Contact:
                                                               ------------------------, ID No. ------------
----------------------------------                             Telephone Number:
------------------------                                       ------------------
-------------------------------                                Refer Reply To:
                                                               CC:CORP:4
------------------------------------------------------------   PLR-106294-16
                                                               Date:
                                                               April 13, 2016




LEGEND

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

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

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




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

This is in response to a letter dated February 23, 2016, 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 file an election. The extension is being
requested for Parent to file 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”). The material information
submitted for consideration is summarized below.
PLR-106294-16                                2

Parent is the common parent of a consolidated group (“Parent Group”). Parent Group
incurred a CNOL for the tax year ending Date 1. Parent intended to relinquish the
carryback period for its consolidated group’s CNOL on its tax return for the tax year
ending Date 1. Parent Group’s tax return for tax year ending Date 1 was filed
consistent with a valid election having been made. However, for various reasons, a
valid election was not filed. After the date that the return and Election were due (with
extension), 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 back 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.

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).
PLR-106294-16                                  3

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 § 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 and
Tax Professional 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 (PLR-106294-16) 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 and Tax Professional. However, the
Director should verify all essential facts. Moreover, notwithstanding that an extension is
PLR-106294-16                                  4

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 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
being sent to your authorized representative.

                                       Sincerely,



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




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