Consolidated group gets 60 days to waive a CNOL carryback after returning its refund

Plain-English summary

A consolidated corporate group generated a consolidated net operating loss (CNOL), carried it back to an earlier year, and received a refund. The parent later returned the refund and sought to make the irrevocable election to relinquish the entire carryback period. It had missed the election because it was unaware of the requirement and reasonably relied on a tax professional who did not make or recommend it. The request came before the IRS discovered the omission, the relevant years remained open, and no group member had a separate return year during the carryback period. The IRS granted 60 days to file the election and amend the relevant returns. Relief is conditioned on the group's aggregate tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: May the consolidated group belatedly elect to waive the entire carryback period for its CNOL?
• Outcome: Approved (60-day extension, subject to the aggregate-tax-liability condition)
• 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: 201901007                                              Third Party Communication: None
Release Date: 1/4/2019                                         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:1
                                                               PLR-117313-18
                                                               Date:
                                                               October 09, 2018


                  TY:------
Legend

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

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

Date 0                     = --------------------------

$x                         = ---------------

Company Officials = --------------------------------------------------------------------------------------
-----------------------------------------------------------------------------

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

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

This letter responds to a letter dated May 22, 2018, 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. 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. Additional information was submitted in a letter dated July
31, 2018. The material information submitted for consideration is summarized below.

Parent is the common parent of a consolidated group (“Parent Group”). Parent Group
generated a CNOL in the tax year ending on Date 1. Parent originally carried the CNOL
to a prior consolidated return year of Parent Group ending on Date 0 which resulted in a
tax refund of $x. Subsequently, Parent unilaterally returned the cash refund it had


received from the Internal Revenue Service as a result of the carryback and has since
sought this extension to relinquish the carryback period. Parent has represented that
Parent Group 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 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 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.

The election was required to be filed by the due date of Parent Group’s tax return for the
tax year ending Date 1 but for various reasons, Parent failed to file a valid election. The
period of limitation on assessments under § 6501(a) has not expired for Parent Group’s
tax year ending Date 1 or any subsequent taxable year.

Section 1.1502-21(b)(3)(i) provides that a consolidated group may make an irrevocable
election 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. 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 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 Officials, 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 timely make the Election was discovered by the Internal Revenue Service, that
Parent failed to make the Election because, after exercising reasonable diligence
(taking into account Parent’s experience and the complexity of the return or issue),
Parent was unaware of the necessity for the election, and that Parent reasonably relied
on a qualified tax professional who failed to make, or advise Parent to make, the
Election. See §§ 301.9100-3(b)(1)(i), (iii), and (v). Parent also provided information
demonstrating that it was not informed in all material respects of the required election
and related tax consequences and that Parent’s decision to seek relief did not involve
hindsight. Section § 301.9100-3(b)(3)(ii) and (iii).

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.

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 Parent Group’s tax liability for the years involved.
A determination thereof will be made upon audit of the Federal income tax returns
involved. Further, no opinion is expressed as to the Federal income tax effect, if any, if it
is determined that Parent Group’s liability is lower. Section 301.9100-3(c).

Parent should file the election in accordance with § 1.1502-21(b)(3)(i). Parent Group's
returns must be amended to attach the election statement required by § 1.1502-
21(b)(3)(i). A copy of this letter should be attached to the election statement.
Alternatively, if 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 or 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 the above ruling.

For purposes of granting relief under § 301.9100-1, we relied on certain statements and
representations made by Parent, Company Officials, and Tax Professional. However, all


essential facts should be verified. 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, still 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.

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
                                       Senior Technician Reviewer, Branch 3
                                       Office of Associate Chief Counsel (Corporate)




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