Consolidated group gets more time to waive a loss carryback

Plain-English summary

A corporate parent intended to waive the carryback period for its consolidated group's net operating loss and filed a timely return consistent with that intent. The required election statement was not validly filed because the parent reasonably relied on a qualified tax professional who failed to make or recommend the election. The parent sought relief before the IRS discovered the missed election. The IRS found reasonable conduct, good faith, and no prejudice to the government, and granted 60 days to file the election. The relief requires an amended return with the election statement and this ruling, and it is conditioned on the group's aggregate tax liability not being lower than if the election had been timely made.

Ruling snapshot

• Question: Could the consolidated group receive extra time to elect to relinquish the entire carryback period for its consolidated net operating loss?
• Outcome: approved, with 60 days to file the election and subject to stated conditions
• 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: 201717040                                                 Third Party Communication: None
Release Date: 4/28/2017                                           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:3
                                                                  PLR-138555-16
                                                                  Date:
                                                                  January 19, 2017


Legend

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

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

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

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

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

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

We respond to a letter dated November 22, 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) 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.

Parent is the common parent of a consolidated group (“Parent Group”). Parent Group
sustained a CNOL in the tax year ending on Date 1. 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
PLR-138555-16                                2

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.

Parent intended to relinquish the carryback period for its consolidated group’s CNOL on
its tax return for the tax year ending Date 1. The return was timely filed, consistent with
a valid election having been made. However, for various reasons, a valid election was
not filed. Subsequent to Date 2, the date that the Election was due (with extensions), 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.

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 § 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
PLR-138555-16                                  3

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’s 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, and Tax Professional. 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.
PLR-138555-16                                 4

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
                                       Chief, Branch 3
                                       Office of Associate Chief Counsel (Corporate)


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