Taxpayer received 60 days to file a duplicate Form 3115

Plain-English summary

A consolidated group timely filed its return with the original Form 3115 for an automatic accounting-method change involving prepaid liabilities under the 12-month rule. Its accounting firm failed to mail the required signed duplicate Form 3115 to the IRS office in Covington because of unusual circumstances and an administrative oversight. The firm discovered the omission shortly after filing and promptly sought relief. The IRS found reasonable and good-faith conduct and unusual or compelling circumstances that prevented prejudice to the government. It gave the taxpayer 60 days to file the duplicate Form 3115.

Ruling snapshot

• Question: May the taxpayer file late the duplicate copy of an otherwise timely automatic Form 3115?
• Outcome: approved, with 60 days to file the signed duplicate in Covington
• Key authorities: IRC § 446(e); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Rev. Procs. 2015-13, 2018-31, and 2019-1

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201935002
                                                               [Third Party Communication:
Release Date: 8/30/2019
                                                               Date of Communication: Month DD,
Index Number: 9100.00-00                                       YYYY]
                                                               Person To Contact:
-----------------------------------------------                -----------------------, ID No. -------------------
-------------------------                                      ---------------------------------------------------
---------------------------------                              Telephone Number:
----------------------------                                   ----------------------
                                                               Refer Reply To:
                                                               CC:ITA:B02
                                                               PLR-103684-19
                                                               Date:
                                                               May 23, 2019


TY: Taxable year ending ---------------------------

Legend

Taxpayer                            =        ------------------------------------------------------------------------

A                                   =        ----------------------

Date1                               =        ------------------------

Date2                               =        ---------------------------

Date3                               =        ------------------------

--------------------

        This is in response to a letter dated Date1, requesting an extension of time to file
a duplicate copy of a completed automatic Form 3115 with the IRS office in Covington,
Kentucky as required. Pursuant to this automatic Form 3115, for the taxable year
ended Date2, Taxpayer will deduct prepaid payment liabilities that satisfy the 12 month
rule of section 1.263(a)–4(f) of the Income Tax Regulations at the time the expenses
are paid.

      This request is made in accordance with §§ 301.9100-1 and 301.9100-3 of the
Procedure and Administration Regulations.

FACTS AND REPRESENTATIONS

         Taxpayer represents the following:
PLR-103684-19                                         2

      Taxpayer is the common parent of an affiliated group of corporations filing
consolidated returns. The group files consolidated returns on the basis of the calendar
year. Taxpayer uses an overall accrual method of accounting for federal income tax
purposes.
       The group consists of the following entities:
         Legal Entity                                              EIN                 PBAC
         --------------------------------------------------------- -----------------   ------------
         --------------------------------------                    -----------------   -----------
         ------------------------------                            -----------------   -----------
         --------------------------------------                    -----------------   -----------

       Taxpayer timely filed its federal income tax return for the taxable year ending
Date2, along with the original of a Form 3115 to change its method of accounting for
prepaid payment liabilities under section 11.05 of Rev. Proc. 2018-31. However, as a
result of an administrative oversight, Taxpayer failed to file a duplicate copy of this Form
3115, with signature, with the IRS in Covington, KY as required by section 9.05(2) of
Rev. Proc. 2019-1.

       Taxpayer engaged A, a certified public accounting firm, to prepare and file its
federal tax return and Form 3115 for the taxable year ending Date2. Taxpayer, with the
assistance of A, electronically filed its Form 1120, U.S. Corporation Income Tax Return
(with original Form 3115 application attached), for the taxable year ended Date2.
However, because of unusual circumstances and administrative oversight, the copy of
the signed Form 3115 was not mailed to the IRS Covington, KY office.

       Shortly after Date3, A discovered that the duplicate copy of the Form 3115
application was not filed with the IRS in Covington for the year of change. Upon
discovery of this oversight, A notified Taxpayer and immediately underwent the process
to request an extension of time under Treas. Reg. § 301.9100 to file the Form 3115 with
the IRS in Covington for the taxable year ended Date2.

LAW AND ANALYSIS

        Rev. Proc. 2015-13 provides the procedures by which a taxpayer may obtain
automatic consent to change certain accounting methods. A taxpayer complying with all
the applicable provisions of this revenue procedure has obtained the consent of the
Commissioner to change its accounting method under § 446(e) of the Internal Revenue
Code and the Income Tax Regulations thereunder. Section 9.05(2) of Rev. Proc. 2019-
1 provides that a taxpayer changing an accounting method pursuant to Rev. Proc.
2015-13 must complete and file a Form 3115 in duplicate. The original must be attached
to the taxpayer's timely filed (including any extensions) original federal income tax return
PLR-103684-19                                 3

for the year of change, and a copy (with signature) of the Form 3115 must be filed with
the appropriate office of the IRS no earlier than the first day of the year of change and
no later than when the original is filed with the federal income tax return for the year of
change. With respect to the “appropriate office of the IRS,” section 9.05(2) of Rev.
Proc. 2019-1 now provides that the duplicate copy of the automatic change request
Form 3115 should be mailed to the IRS office in Covington, KY.

       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 an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2.

       Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
to make certain regulatory elections. Section 301.9100-1(b) defines a “regulatory
election” as an election whose due date is prescribed by a regulation published in the
Federal Register, or a revenue ruling, revenue procedure, notice, or announcement
published in the Internal Revenue Bulletin.

       Section 301.9100-3(a) provides that requests for extensions of time for regulatory
elections 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(b)(1) provides that, in general, a taxpayer is deemed to have
acted reasonably and in good faith if the taxpayer: (i) requests relief before the failure to
make the regulatory election is discovered by the Service; (ii) failed to make the election
because of intervening events beyond the taxpayer’s control; (iii) failed to make the
election because, after exercising reasonable diligence, the taxpayer was unaware of
the necessity for the election; (iv) reasonably relied on the written advice of the Service;
or (v) reasonably relied on a qualified tax professional, and the tax professional failed to
make, or advise the taxpayer to make, the election.

       Section 301.9100-3(b)(3) provides that a taxpayer is deemed to have not acted
reasonably and in good faith if the taxpayer: (i) seeks to alter a return position for which
an accuracy-related penalty has been or could be imposed under section 6662 at the
time the taxpayer requests relief and the new position requires or permits a regulatory
election for which relief is requested; (ii) was informed in all material respects of the
required election and related tax consequences but chose not to file the election; or (iii)
uses hindsight in requesting relief.
PLR-103684-19                                  4

        Section 301.9100-3(c)(1) provides that the interests of the Government are
prejudiced if granting relief would result in the taxpayer having a lower tax liability in the
aggregate for all taxable years affected by the election than the taxpayer would have
had if the election had been timely made. The interests of the Government are
ordinarily prejudiced if the taxable year in which the regulatory election should have
been made, or any taxable years that would have been affected by the election had it
been timely made, are closed by the period of limitations on assessment under
§ 6501(a) before the taxpayer’s receipt of a ruling granting relief under this section.

       Section 301.9100-3(c)(2) provides special rules for accounting method regulatory
elections. Section 301.9100-3(c)(2) provides that the interests of the Government are
deemed prejudiced, except in unusual or compelling circumstances, if the accounting
method regulatory election for which relief is requested is subject to the advance
consent procedures for method changes, requires a § 481(a) adjustment, would permit
a change from an impermissible method of accounting that is an issue under
consideration by examination or any other setting, or provides a more favorable method
of accounting if the election is made by a certain date or taxable year.

       Taxpayer’s election is a regulatory election as defined in § 301.9100-1(b)
because the due date of the election is prescribed in § 1.263(a)-5(f) of the Income Tax
Regulations. The Commissioner has the authority under §§ 301.9100-1 and 301.9100-
3 to grant an extension of time to file a late regulatory election.

CONCLUSION

       Based upon our analysis of the facts and representations provided, Taxpayer
acted reasonably and in good faith, and granting relief will not prejudice the interests of
the Government due to unusual or compelling circumstances. Therefore, the
requirements of §§ 301.9100-1 and 301.9100-3 have been met.

       Taxpayer is granted an extension of 60 days from the date of this ruling to file a
duplicate copy of a completed automatic Form 3115 with the IRS office in Covington,
Kentucky as required.

CAVEATS

      The rulings contained in this letter are based on information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
appropriate parties. While this office has not verified any of the material submitted in
support of the request for rulings, it is subject to verification on examination.

       Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. In particular, no opinion is expressed as to whether Taxpayer
PLR-103684-19                                5

properly included the correct costs as its success-based fees subject to the retroactive
election, or whether Taxpayer's Transaction is within the scope of Rev. Proc. 2011-29.

       A copy of this letter must be attached to any income tax return to which it is
relevant. Alternatively, a taxpayer filing its return electronically may satisfy this
requirement by attaching a statement to its return that provides the date and control
number of the letter ruling.

        In accordance with the provisions of the power of attorney currently on file with
this office, a copy of this letter is being sent to your authorized representatives. We are
also sending a copy of this letter to the appropriate operating division director.
Enclosed is a copy of the letter ruling showing the deletions proposed to be made in the
letter when it is disclosed under § 6110.

      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.

                                                 Sincerely yours,



                                                 _______________________________
                                                 David Chistensen
                                                 Assistant to Chief, Branch 2
                                                 Office of Associate Chief Counsel
                                                 (Income Tax & Accounting)



Enclosure:

Copy for § 6110 purposes

cc: