Consolidated group receives 60 days for late section 382 election

Plain-English summary

A consolidated group experienced an ownership change that limited its use of pre-change losses and credits. The group failed to make the regulatory election to close its books on the change date and allocate income and loss between the pre-change and post-change periods. Affidavits showed that the parent reasonably relied on a qualified tax professional who failed to make or recommend the election, and the IRS had not discovered the omission first. The IRS granted 60 days to amend the return and attach the required election statement. Relief was conditioned on the group's aggregate tax liability not being lower than it would have been if the election had been timely, and the ruling did not decide whether the group substantively qualified for the election.

Ruling snapshot

• Question: Could a consolidated group receive extra time to make a section 382 closing-of-the-books election after an ownership change?
• Outcome: approved
• Key authorities: IRC §§ 382, 383; Treas. Reg. §§ 1.382-6(b), 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201734003                                              Third Party Communication: None
Release Date: 8/25/2017                                        Date of Communication: Not Applicable
Index Number: 9100.22-00, 382.02-05
                                                               Person To Contact:
-------------------------                                      -----------------------------,
------------------------------------------------------------   ID No. ------------------
----------                                                     Telephone Number:
---------------------                                          ----------------------
--------------------------------------------------             Refer Reply To:
---------------------------------                              CC:CORP:B02
                                                               PLR-109017-17
                                                               Date:
                                                               May 31, 2017


Legend

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

Year 1                         =        -------

Company Official               =        ----------------------------------------------------------------------------
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Tax Professional               =        ----------------------------------------------------------------------------
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Dear -----------------:

This letter responds to a letter dated March 13, 2017, requesting on behalf of Parent an
extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure and
Administration Regulations to file an election. In particular, Parent is requesting an
extension of time for the consolidated group of which Parent is the common parent to
make a closing-of-the-books election under § 1.382-6(b) of the Income Tax Regulations
(the “Election”) with respect to an ownership change, within the meaning of § 382 of the
Internal Revenue Code. Additional information was submitted in a letter dated May 5,
2017. The material information provided is summarized below.
PLR-109017-17                                 2

Parent is the common parent of a consolidated group (the “Parent Group”). On Date 1,
Parent Group experienced an ownership change as defined in § 382(g) (the “ownership
change”) and, consequently, §§ 382(a) and 383(a) limit its ability to offset post-change
taxable income and liabilities by pre-change losses and credits.

An election under § 1.382-6(b) to close its books with respect to the ownership change
was due by the due date (including extensions) of Parent Group’s tax return for the Year
1 taxable year, but for various reasons, Parent did not make the Election. Subsequently,
Parent submitted this request, under § 301.9100-3, for an extension of time to file the
Election. The period of limitations on assessment under § 6501(a) has not expired for
the taxable year for which the election should have been filed or any subsequent
taxable year. Parent has 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.

Section 1.382-6(b)(1) allows a loss corporation to elect to allocate its net operating loss
or taxable income and its net capital loss or modified capital gain net income for the
change year between the pre-change period and the post-change period as if the loss
corporation's books were closed on the change date.

Section 1.382-6(b)(2)(i) provides that a loss corporation makes the closing-of-the-books
election by including the following statement on the information statement required by
§ 1.382-11(a) for the change year: “THE CLOSING-OF-THE-BOOKS ELECTION
UNDER § 1.382-6(b) IS HEREBY MADE WITH RESPECT TO THE OWNERSHIP
CHANGE OCCURRING ON [INSERT DATE].” The election must be made on or before
the due date (including extensions) of the loss corporation's income tax return for the
change year.

Section 1.382-(6)(b)(3)(i) provides that if an election under § 1.382-6(b) is made with
respect to an ownership change occurring in a consolidated return year, all allocations
under this section with respect to that ownership change must be consistent with the
election.

Section 1.382-6(e) provides that the principles of § 1.382-6 apply for purposes of
allocating, under § 383, excess foreign taxes under § 904(c), current year business
credits under § 38, and the minimum tax credit under § 53. The loss corporation must
use the same method of allocation (ratable allocation or closing-of-the-books) for
purposes of §§ 382 and 383.

Sections 1.1502-91, 1.1502-92 and 1.1502-93 set forth the rules for determining an
ownership change under § 382 for members of consolidated groups and the § 382
limitations with respect to attributes described in § 1.1502-91(e) and (f). The rules
generally provide that an ownership change and the § 382 limitation are determined
PLR-109017-17                                3

with respect to these attributes for the group (or loss subgroup) on a single entity basis
and not for its members separately.

Section 1.1502-91(a)(2) provides that if the post-change year includes the change date,
§ 382(b)(3)(A) is applied so that the consolidated § 382 limitation (or subgroup § 382
limitation) does not apply to the portion of consolidated taxable income that is allocable
to the period in the year on or before the change date, citing generally §1.382-6 (relating
to the allocation of income and loss).

Section 1.1502-98 provides that the rules contained in §§ 1.1502-91 through 1.1502-96
also apply for purposes of § 383, with appropriate adjustments to reflect that § 383
applies to credits and net capital losses.

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. Requests for relief under § 301.9100-3 will be granted when
the taxpayer provides evidence that it 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.,
§ 1.382-6(b)(2)(i)). Therefore, the Commissioner has discretionary authority under
§ 301.9100-3 to grant an extension of time for Parent to file the Election, provided that
Parent establishes to the satisfaction of the Commissioner that 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 the
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 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 affidavits submitted and
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, we grant
PLR-109017-17                                  4

an extension of time under § 301.9100-3, for sixty (60) days from the date on this letter,
for Parent to file the Election.

Parent should file the election in accordance with § 1.382-6(b)(2). The Parent Group’s
return must be amended to attach the election statement required by § 1.382-6(b)(2). A
copy of this letter should be attached to the election statement. Alternatively, if Parent
Group files its amended return electronically, Parent Group may satisfy the this latter
requirement by attaching a statement to the Parent Group's amended return that
provides the date and control number (PLR-109017-17) of this letter ruling.

The above extension of time is conditioned on the Parent Group’s tax liability (if any) not
being lower, in the aggregate, for the year to which the Election applies, and all
subsequent years, 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 amount of the
Parent Group’s tax liability for the years involved. A determination thereof will be made
by the applicable Director's office upon audit of the Federal income tax return involved.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any item discussed or referenced in this letter. In particular, we
express no opinion with respect to whether Parent qualifies substantively to make the
Election. In addition, we express no opinion as to the tax effects or any other tax
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 effects resulting from, filing the Election late that are not specifically set forth in this
letter.

For the purposes of granting relief under § 301.9100-3, we relied on certain statements
and representations made under penalty of perjury by Parent, Company Official, and
Tax Professional. The Director, however, should verify all essential facts. In addition,
notwithstanding that an extension is granted under § 301.9100-3 to file the Election,
penalties and interest that would otherwise be applicable, if any, continue to apply.

This ruling 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, copies of this letter are
being sent to your authorized representatives.

                                        Sincerely,


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