Affiliated group receives extra time to elect consolidated filing

Plain-English summary

A parent corporation intended to file a consolidated federal income tax return with three subsidiaries but did not file a valid return by the election deadline. The group requested relief before the IRS discovered the failure, and none of the four corporations had filed returns for the affected year or later years. 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 make the election by filing the consolidated return with a Form 1122 for each subsidiary, provided the group was substantively eligible. The relief was also conditioned on the group's aggregate tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: May an affiliated group receive extra time to elect consolidated-return filing by submitting its first consolidated return late?
• Outcome: approved, subject to substantive eligibility and the aggregate-tax-liability condition
• Key authorities: IRC § 1502; Treas. Reg. §§ 1.1502-75 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201802009                                            Third Party Communication: None
Release Date: 1/12/2018                                      Date of Communication: Not Applicable
Index Number: 9100.20-00, 1502.75-00
                                                             Person To Contact:
------------------------------------                         ---------------------, ID No. ----------------
----------------------------                                 Telephone Number:
------------------------                                     ----------------------
-------------------------------------------------------      Refer Reply To:
                                                             CC:CORP:B1
                                                             PLR-124177-17
                                                             Date:
                                                             October 18, 2017


                                                    LEGEND

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

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

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

Sub 3                    = --------------------
                           ------------------------

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

Year                     = -------

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

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

Tax Professional         = -------------------
                           ---------------------------------------------
PLR-124177-17                                 2


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

This letter responds to a letter from your authorized representative, dated July 28, 2017,
requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure
and Administration Regulations to file an election. In particular, Parent is requesting an
extension of time for Parent and the members of its affiliated group (the “Parent Group”)
to file a consolidated Federal income tax return, with Parent as the common parent,
under § 1.1502-75(a)(1) of the Income Tax Regulations (the “Election”), for the taxable
year ending Date 1. The material information submitted for consideration is
summarized below.

Parent was a domestic corporation incorporated under the laws of State that directly
and indirectly owned Sub 1, Sub 2, and Sub 3 at the end of the Year taxable year.

Section 1.1502-75(a)(1) of the Income Tax Regulations provides, in part, that an
affiliated group of corporations which did not file a consolidated return for the
immediately preceding taxable year may file a consolidated return in lieu of separate
returns for the taxable year, provided that each corporation which has been a member
of the group during any part of the taxable year for which the consolidated return is to
be filed consents, in accordance with § 1.1502-75(b) of the regulations, to the
regulations under § 1502. If a group wishes to exercise its privilege of filing a
consolidated return, such consolidated return must be filed not later than the last day
prescribed by law (including extensions of time) for the filing of the common parent’s
return.

An election for the Parent Group to file a consolidated income tax return, with Parent as
the common parent, for the Year taxable year was due on the last day prescribed by law
(including extensions of time) for the filing of Parent’s return. Parent intended to file the
Election, but for various reasons, a valid Election (i.e., the filing of the consolidated
return) was not filed by the due date of Parent’s return. Subsequently, this request was
submitted, 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 Year 1 or any
subsequent taxable year. None of Parent, Sub 1, Sub 2, or Sub 3 has filed a federal
income tax return for the Year tax year or any subsequent year.

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
PLR-124177-17                                3

making certain elections. 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-
75(a)(1)). Therefore, the Commissioner has discretionary authority under § 301.9100-3
to grant an extension of time for Parent to file the Election, provided Parent shows 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 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).

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, provided that Parent Group qualifies
substantively to file a consolidated return for the applicable tax year, we grant an
extension of time, under § 301.9100-3, for sixty (60) days from the date on this letter for
Parent to file the Election (by filing a consolidated return, with Parent as the common
parent, and attaching a Form 1122 for each of Sub 1 – Sub 3 for its Year taxable year).
Parent Group must attach a copy of this ruling letter to such return, or if Parent Group
files the return electronically, a statement must be attached to the return that provides
the date on, and the control number of, this ruling letter.

The above extension of time is conditioned on Parent Group’s 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 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 returns involved.

We express no opinion with respect to whether, in fact, the Parent Group qualifies
substantively to file a consolidated return. In addition, we express no opinion as to the
tax effects or consequences of filing the return or the Election late under the provisions
of any other section of the Code or regulations, or as to the tax treatment of any
conditions existing at the time of, or effects resulting from, filing the return or the
Election late that are not specifically set forth in the above ruling.
PLR-124177-17                                 4

For the purposes of granting relief under § 301.9100-3, we relied on certain statements
and representations made by Parent, Company Official, and Tax Professional.
However, the Director 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)