Consolidated group received extra time for a general asset account election

Plain-English summary

A consolidated group acquired a subsidiary's real property through contribution and liquidation steps during the tax year. The group's return included a general asset account election for the predecessor entity, and its books treated the real property as being in general asset accounts, but the legal successor was omitted from the election statement and its Form 4562 box was not checked. After an adviser explained that the successor should have made the election, the parent requested late-election relief. The IRS found that the regulatory relief standards were satisfied and granted 60 days to file an amended consolidated return making the section 168(i)(4) election for the successor. It did not decide whether the assets were otherwise eligible for general asset account treatment or the tax consequences of the underlying restructuring.

Ruling snapshot

• Question: May the consolidated parent make a late general asset account election for real property held by a successor subsidiary?
• Outcome: approved, with 60 days to file an amended consolidated return and election statement
• Key authorities: IRC § 168(i)(4); Treas. Reg. §§ 1.168(i)-1, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201944001                                             Third Party Communication: None
Release Date: 11/1/2019                                       Date of Communication: Not Applicable
Index Number: 9100.04-00
                                                              Person To Contact:
--------------------                                          ---------------------------, ID No. ---------------
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----------------------------------------------                Telephone Number:
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------------------------------------------------------        Refer Reply To:
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                                                              PLR-100776-19
                                                              Date:
                                                              August 1, 2019




Re: Request for Extension of Time to Make a General Asset Account Election under
§ 168(i)(4)

Legend

P            =       ----------------------------------------------
                     -------------------------
S1           =       ----------------------------------------------------------------
S2           =       -------------------------------------------------------------------
                     -----------------------------
LLC          =       --------------------------------------------------------------------
                     -----------------------------
A            =       -------------------------------------------------------------------------------
CPA          =       ----------------------
Year1        =       -------
Date1        =       --------------------------
Date2        =       ------------------


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

      This letter ruling responds to a letter dated December 10, 2018, submitted by P
on behalf of S1, requesting an extension of time pursuant to §§ 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations to make a general asset
account election under § 168(i)(4) of the Internal Revenue Code for the taxable year
ended Date1 (Year1 taxable year).

PLR-100776-19                                2


                                         FACTS

       P represents that the facts are as follows:

       P is the common parent of an affiliated group of corporations that files
consolidated federal income tax returns that includes S1. S1 is A. S1’s overall method
of accounting is an accrual method.

        On Date2 (which is during the Year1 taxable year), S2 was contributed to S1,
and then converted into a limited liability company by a merger into LLC. LLC is wholly-
owned by S1 and is a disregarded entity for federal income tax purposes. This
transaction was treated as a contribution of S2 into S1 under § 351, followed by a
liquidation of S2 into S1 under § 332. As a result of this transaction, S2 was no longer
in existence by the end of the Year1 taxable year for federal tax purposes.

       In its consolidated federal income tax return for the Year1 taxable year, P
attached to such return a statement electing to include each real property asset placed
in service during the Year1 taxable year to be included in a single-asset general asset
account, for certain entities including S2. S1 was not included in this general asset
account election statement nor was the Form 4562, Line 18 box checked in S1’s pro
forma federal income tax return for the Year1 taxable year. However, the supporting
books and records for P’s consolidated federal income tax return for the Year1 taxable
year reflected S1’s real property assets as being placed into general asset accounts.

       Prior to the Year1 taxable year, no general asset account election had been
made for S1 because S1 did not have any real estate property. Following the Date2,
transaction described above, S1 owned, for federal tax purposes, all of the activities and
assets of S2, including the real property assets placed in service by S2 during the Year1
taxable year.

      After filing its consolidated federal income tax return for the Year1 taxable year, P
consulted with CPA whose representatives explained that as a result of the Date2,
transaction described above, a general asset account election with respect to the assets
placed in service by S2 (including its legal successor, LLC) in the Year1 taxable year
should have been made by S1 and not S2.

                                 RULING REQUESTED

       P requests an extension of time under §§ 301.9100-1 and 301.9100-3 to make
the general asset account election pursuant to § 168(i)(4) and § 1.168(i)-1(l) of the
Income Tax Regulations on behalf of S1 to include each real property asset placed in
service by S1 or S1’s predecessor during the Year1 taxable year into a single-asset
general asset account.

PLR-100776-19                                 3

                                          LAW

      Section 168(i)(4) provides that under regulations, a taxpayer may maintain one or
more general asset accounts for any property to which this section applies; and that,
except as provided in regulations, all proceeds realized on any disposition of property in
a general asset account shall be included in income as ordinary income.

       Section 1.168(i)-1(a) provides the rules for general asset accounts under §
168(i)(4), and also provides that the provisions of § 1.168(i)-1 apply only to assets for
which an election is made under §1.168(i)-1(l).

       Section 1.168(i)-1(c)(1) provides that assets that are subject to either the general
depreciation system of § 168(a) or the alternative depreciation system of § 168(g) may
be accounted for in one or more general asset accounts. Section 1.168(i)-1(c)(1)
further provides that an asset is not to be included in a general asset account if the
asset is placed in service and disposed of during the same taxable year.

       Section 1.168(i)-1(l)(2) and (3) provide the time and manner of making the
general asset account election. Under § 1.168(i)-1(l)(2), the election to apply § 1.168(i)-
1 is made on the taxpayer’s timely filed (including extensions) income tax return for the
taxable year in which the assets included in the general asset account are placed in
service by the taxpayer, and is made separately by each person owning an asset to
which § 1.168(i)-1 applies (for example, by each member of a consolidated group).

       Section 1.168(i)-1(l)(3) provides that in the year of election, a taxpayer makes the
election under § 1.168(i)-1 by typing or legibly printing at the top of Form 4562,
“GENERAL ASSET ACCOUNT ELECTION MADE UNDER SECTION 168(i)(4),” or in
the manner provided for on Form 4562 and its instructions. The instructions for the
Year1 Form 4562 provide that to make the general asset account election, check the
box on line 18. Section 1.168(i)-1(l)(3) further provides that the taxpayer shall maintain
records that identify the assets included in each general asset account, that establish
the unadjusted depreciable basis and depreciation reserve of the general asset
account, and that reflect the amount realized during the taxable year upon dispositions
from each general asset account.

       Section 1.168(i)-8(b)(2) defines the term “disposition” as occurring when
ownership of the asset is transferred or when the asset is permanently withdrawn from
use either in the taxpayer’s trade or business or in the production of income. See also §
1.168(i)-1(e)(1)(i). Section 1.168(i)-8(d)(1) provides that a disposition includes, among
other things, a transfer of a portion of an asset in a transaction described in §
168(i)(7)(B).

      The transactions described in § 168(i)(7)(B) are (i) any transaction described in §
332, 351, 361, 721, or 731, and (ii) any transaction between members of the same

PLR-100776-19                                4

affiliated group during any taxable year for which a consolidated return is made by such
group.
       Sections 301.9100-1 through 301.9100-3 provide the standards the
Commissioner of Internal Revenue 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(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 301.9100-1(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 301.9100-3(a) provides that requests for relief subject to § 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 the
granting of relief will not prejudice the interests of the Government.

                                     CONCLUSION

       Based solely on the facts and representations submitted, we conclude that the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Accordingly, P is
granted an extension of 60 calendar days from the date of this letter ruling to make the
election under § 168(i)(4) and § 1.168(i)-1(l) on behalf of S1, to include each real
property asset placed in service by S1 or S1’s predecessor during the Year1 taxable
year into a single-asset general asset account. This election must be made by P filing
an amended consolidated federal income tax return for the Year1 taxable year, with a
statement indicating that S1 is electing to include each real property asset placed in
service by S1 or S1’s predecessor during the Year1 taxable year into a single-asset
general asset account.

        In addition, a copy of this letter ruling must be attached to that amended return.
A copy is enclosed for that purpose. Alternatively, a taxpayer filing its consolidated
federal income tax return electronically may satisfy this requirement by attaching a
statement to the amended return that provides the date and control number of the letter
ruling.

       Except as specifically ruled upon above, no opinion is expressed or implied
concerning the federal tax consequences of the facts described above under any other
provision of the Code or regulations (including other subsections of § 168). Specifically,
no opinion is expressed or implied on (1) whether each real property asset placed in

PLR-100776-19                                  5

service by S1 or S1’s predecessor during the Year1 taxable year is eligible to be
accounted for in one or more general asset accounts, or (2) the federal tax
consequences of the Date2, transaction previously described in this letter ruling.

      The ruling contained in this letter ruling is based upon information and
representations submitted by P and accompanied by a penalty of perjury statement
executed by an appropriate party. While this office has not verified any of the material
submitted in support of the request for the ruling, all material is subject to verification on
examination.

      This letter ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

      In accordance with the power of attorney on file with this office, we are sending a
copy of this letter ruling to Taxpayer’s authorized representative. We also are sending a
copy of this letter ruling to the appropriate operating division director.

                                                   Sincerely,

                                                   KATHLEEN REED


                                                   Kathleen Reed
                                                   Branch Chief, Branch 7
                                                   Office of Associate Chief Counsel
                                                   (Income Tax and Accounting)


Enclosures (2):
  Copy of this letter
  Copy for section 6110 purposes