Late unified loss basis-reduction election granted

Plain-English summary

A consolidated group's parent sold all the stock of two subsidiaries at losses, ending their affiliation with the group. The parent intended to elect under the unified loss rules to reduce its stock bases by the subsidiaries' respective attribute reduction amounts, but a qualified tax professional failed to make or advise the parent to make the election. The IRS found that the parent acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days to file the election, assuming the group qualified substantively, and required amended returns with the election statement and ruling attached. Relief was conditioned on the group's aggregate tax liability, taking the time value of money into account, being no lower than with a timely election. The IRS did not decide whether the parent substantively qualified to make the election.

Ruling snapshot

• Question: May the consolidated group make a late election to reduce basis in transferred subsidiary loss shares under the unified loss rules?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 1.1502-36(d)(6), 1.1502-36(e)(5), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201739008                                              Third Party Communication: None
Release Date: 9/29/2017                                        Date of Communication: Not Applicable
Index Number(s): 9100.22-00, 1502.36-00
                                                               Person To Contact:
----------------                                               ---------------------, ID No. ----------------
-------------------------------                                Telephone Number:
-------------------------------------                          ----------------------
----------------------------------                             Refer Reply To:
--------------------------------------                         CC:CORP:B01
                                                               PLR-109092-17
                                                               Date:
                                                               June 30, 2017




                                                       LEGEND

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

State                               =        --------------

Sub 1                               =         -------------------------------------------
----------------------------------------------------------------------

Sub 2                               =         ----------------------------------------
----------------------------------------------------------------------

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

Year                                =        -------

Former Company Official
& Tax Professional      =                    ------------------------------------------------------------------------
                                             --------------------------------------------------------------


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

        This letter responds to your authorized representatives’ letter dated March 9,
2017, requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations. Specifically, Parent is requesting an extension of time for
Parent to file an election under § 1.1502-36(d)(6)(i)(A) for the taxable year ended Date
1, for Parent to reduce its adjusted basis in the stock of Sub 1 and Sub 2 by their
respective attribute reduction amounts (the “Election”). Additional information and
PLR-109092-17                                 2

documentation was submitted in a letter dated May 12, 2017. The material information
is summarized below.

      During Year, Parent was the common parent of a consolidated group (the
“Parent Group”), which included Sub 1 and Sub 2. During Year, Parent sold all of the
outstanding shares of Sub 1 and Sub 2, each at a loss. The Sub 1 and Sub 2
dispositions constituted transfers by Parent of the Sub 1 and Sub 2 stock under
§ 1.1502-36(f)(1), and as a result of the transfers, Parent was no longer affiliated with
Sub 1 and Sub 2.

       Parent intended to make the Election. The Election was due by the due date
(including extensions) of Parent Group’s consolidated return for the taxable year ending
Date 1. However, for various reasons, no election was made. Subsequently, Parent
submitted this request, under § 301.9100-3, for an extension of time to file the Election.

      Parent has represented that it is not seeking to alter a return position for which
an accuracy related penalty has been or could have been imposed under § 6662.

       Section 1.1502-36 provides rules for adjusting members’ basis in stock of a
subsidiary (S) and for reducing S’s attributes when a member (M) transfers a loss share
of S stock. Section 1.1502-36(a)(1).

      Section 1.1502-36(d) provides rules to reduce attributes of S and its lower tier
subsidiaries to the extent they duplicate a net loss on shares of S stock transferred by
members in one transaction.

        Section 1.1502-36(d)(6)(i) provides that notwithstanding the general operation of
§ 1.1502-36(d), the parent of a consolidated group (P) may elect to reduce the potential
for loss duplication, and thereby reduce or avoid attribute reduction. Under this election,
P may elect: (A) to reduce all or any portion (including any portion in excess of a
specified amount) of members’ bases in transferred loss shares of S stock; (B) to
reattribute all or any portion (including any portion in excess of a specified amount) of
S’s Category A, Category B, and Category C attributes (each as defined in § 1.1502-
36(d)(4)), to the extent they would otherwise be subject to reduction under § 1.1502-
36(d); or (C) any combination thereof.

      Section 1.1502-36(d)(6)(ii) provides that an election to reduce loss duplication
under § 1.1502-36(d)(6) is made in the manner provided in § 1.1502-36(e)(5).

       Section 1.1502-36(e)(5) states that the elections provided by § 1.1502-36 are
irrevocable and made in a statement entitled “Section 1.1502-36 Statement” that must
be included on or with the group’s timely filed return (original or amended, if filed by the
due date of the return, including extensions) for the taxable year of the transfer of the
subsidiary stock to which the election relates.
PLR-109092-17                                  3


       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). 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).

       The election by a consolidated group to reduce a member’s basis in its loss
shares of subsidiary stock under § 1.1502-36(d)(6)(i)(A) is a regulatory election.
Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an
extension of time for Parent to file the Election, provided 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 and Former
Company Official & Tax Professional explain the circumstances that resulted in the
failure to timely file the 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(b)(1)(i) and (v).

       Based on the facts and information submitted, including the affidavits submitted
and the representations made, we conclude that Parent has shown it acted reasonably
and in good faith, that the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied,
and that granting relief will not prejudice the interests of the government. Accordingly,
provided that Parent Group qualifies substantively to file the Election, we grant an
extension of time under § 301.9100-3, until sixty (60) days from the date on this letter,
for Parent to file the Election.

        Parent should file the Election in accordance with § 1.1502-36(e)(5). Parent
Group’s returns must be amended to attach the election statement required by
§ 1.1502-36(e)(5). A copy of this letter must be attached to the election statement.
Alternatively, if Parent files its returns electronically, Parent may satisfy the requirement
of attaching a copy of this letter by attaching a statement to the Parent Group’s
amended return that provides the date and control number (PLR-109092-17) of this
letter ruling.
PLR-109092-17                                   4


       The above extension of time is conditioned on the Parent Group’s tax liability, if
any, not being lower in the aggregate for all years to which the Election applies than it
would have been if the Election had been made timely (taking into account the time
value of money). We express no opinion as to the Parent Group’s or any of its
members’ tax liabilities. A determination thereof will be made by the Director’s office
upon audit of the income tax returns 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
consequences of filing the Election late under the provisions of any other section of the
Internal Revenue Code or regulations, or as to the tax treatment of any conditions at the
time of, or resulting from, filing the Election late that are not specifically set forth in this
letter.

        For purposes of granting relief under § 301.9100-3, we relied on certain
statements and representations made under penalty of perjury by Parent and Former
Company Official & 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, any penalties and interest that would otherwise be applicable 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
                                           Ken Cohen
                                           Chief, Branch 3
                                           Office of Associate Chief Counsel (Corporate)




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