Consolidated group gets 60 days to waive its loss carryback

Plain-English summary

A newly combined consolidated group intended to waive the carryback period for its consolidated net operating loss but failed to attach a valid election statement to its return. The group consistently filed as though the waiver had been made and represented that no portion of the loss had been or would be carried back. The IRS found that the parent reasonably relied on a qualified tax professional, acted in good faith, and requested relief before the IRS discovered the omission. It granted 60 days to amend the return and attach the required election. Relief was conditioned on the group's aggregate tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: Could the consolidated group file a late election to relinquish the entire carryback period for its consolidated net operating loss?
• Outcome: Approved, with the amended return and election due within 60 days.
• Key authorities: IRC § 172(b)(3); Treas. Reg. §§ 1.1502-21(b)(3)(i), 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                  Washington, DC 20224

Number: 201637003                                                 Third Party Communication: None
Release Date: 9/9/2016                                            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:B01
                                                                  PLR-103042-16
                                                                  Date:
                                                                  June 14, 2016




Legend

Parent                     =         --------------------------------------------------------------------
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PS                         =         --------------------------------------------------------------------------------
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Target 1                   =         --------------------------------------------------------------------------------
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Target 2                   =         ---------------------------------------------------------
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State A                    =        -------------

State B                    =        -------------------

Year 1                     =        -------

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

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

Company Official =                  ---------------------------------------------------------------------------------
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PLR-103042-16                                             2

Tax Professional           =         --------------------------------------------------------------------------------
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Dear --------------:

We respond to a letter dated January 8, 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 make an election. The extension is being requested for
Parent to make an election under § 1.1502-21(b)(3)(i) of the Income Tax Regulations to
relinquish the entire carryback period for the consolidated net operating loss (“CNOL”)
for the consolidated group of which Parent is the common parent (the “Parent Group”)
for the tax year ending Date 1 (the “Election”). The material information submitted for
consideration is summarized below.

In Year 1, PS (a publicly traded master limited partnership organized under the laws of
State A) and its affiliates acquired Target 1 (a State A corporation and the parent of a
consolidated group) and Target 2 (a State B corporation and the parent of another
consolidated group) and restructured these entities into a single consolidated group with
Parent (a State A corporation) as its common parent. The Parent Group incurred a
CNOL for that taxable year, which ended on Date 1 (the “Year 1 CNOL”).

Parent intended to relinquish the carryback period for the Year 1 CNOL on its
consolidated tax return for the tax year ending Date 1. All tax returns for the
consolidated group of which Parent is the common parent have been filed in a manner
consistent with a valid election under § 1.1502-21(b)(3)(i) having been made. However,
for various reasons, a valid election was not filed. After Date 2, the date the Election
was due, 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 the Parent Group has not carried back, and will not carry
back, any portion of the Year 1 CNOL to a prior consolidated return year of the Parent
Group. Appropriate representations have been received from Parent and other parties
indicating that no portion of the Year 1 CNOL has been or will be carried back to a prior
separate return year (within the meaning of § 1.1502-1(e)) of any member of the Parent
Group. Parent also 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 § 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
PLR-103042-16                                3

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 § 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 (v).

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 the Parent Group) tax liability (if any) being not lower, in the aggregate, for all years
PLR-103042-16                                4

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). The Parent
Group’s tax 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 have relied on certain
statements and representations made by Parent, Company Official, Tax Professional,
and other parties. However, the Director should verify all essential facts. Moreover,
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, a copy of this letter is being sent
to your authorized representative.

                                      Sincerely,


                                      Ken Cohen____________________
                                      Ken Cohen
                                      Chief, Branch 3
                                      Office of Associate Chief Counsel (Corporate)