Consolidated-group members receive 60 days to make a value-restoration election

Plain-English summary

A parent corporation underwent an ownership change while it and a subsidiary were members of the same controlled group. The section 382 rules reduced the parent's value by the value of its subsidiary stock, but the regulations allowed the group members to elect to restore some or all of that value. The parent and subsidiary failed to attach the election to their timely returns because their tax professionals did not make or advise them to make it. They requested relief before the IRS discovered the omission. Finding reasonable reliance, good faith, and no prejudice to the government, the IRS granted 60 days to file the value-restoration election, conditioned on the taxpayers not receiving a lower aggregate tax liability than if the election had been timely.

Ruling snapshot

• Question: May the parent and subsidiary receive more time to make the section 1.382-8(h) election restoring subsidiary value to the parent?
• Outcome: approved (a 60-day extension was granted)
• Key authorities: IRC § 382; Treas. Reg. §§ 1.382-8 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                        Department of the Treasury
                                                                 Washington, DC 20224

 Number: 202021010                                               Third Party Communication: None
 Release Date: 5/22/2020                                         Date of Communication: Not Applicable
 Index Number: 382.00-00, 382.12-00,
               382.12-16, 9100.00-00,                            Person To Contact:
               9100.22-00                                        ------------------------, ID No. -----------------
                                                                 Telephone Number:
 ------------------------------                                  --------------------
 ---------------------                                           Refer Reply To:
 -------------------------------------------                     CC:CORP:B3
 -------------------------------------                           PLR-120196-19
                                                                 Date:
                                                                 February 24, 2020




Legend

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

Electing Subsidiary =                -------------------------
--------------------------------------------------------------
-----------------------------------------------------------

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

Date 2                     =        -----------------------

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

Tax Professionals =                  -----------------------------------------------
-------------------------------------------------------------------------------



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

This letter responds to a letter dated August 29, 2019, submitted on behalf of Parent
requesting an extension of time under §301.9100-3 of the Procedure and Administration
Regulations to file an election. Parent is requesting an extension of time for Parent and
Electing Subsidiary to file an election to restore the value of Electing Subsidiary to
Parent under §1.382-8(h) of the Income Tax Regulations (“Election”). Additional
PLR-120196-19                                2

information was received subsequently. The material information submitted is
summarized below.

During the taxable year ended Date 1, Parent was the common parent of a consolidated
group, and Parent and Electing Subsidiary were component members of a controlled
group of corporations under §1.382-8(a).

Parent was a loss corporation and on Date 2 (during the taxable year ended Date 1),
Parent underwent an ownership change within the meaning of section 382(g). As a
result, Parent's value was reduced under §1.382-8(c)(1) by the value of the stock it
owned in Electing Subsidiary. Electing Subsidiary was not a loss corporation.

Section 382(a) of the Internal Revenue Code (“Code”) provides that the amount of the
taxable income of any new loss corporation for any post-change year which may be
offset by pre-change losses shall not exceed the section 382 limitation for such year.
Under section 382(b)(1), the section 382 limitation is determined by multiplying the
value of the old loss corporation by the applicable long-term tax-exempt rate.

A special rule designed to prevent “double counting” by controlled groups is set forth in
§1.382-8. Section 1.382-8(c)(1) requires the value of the stock of each component
member of the controlled group be reduced by the value of the stock owned by that
component member in any other component member. For purposes of applying
§1.382-8, a consolidated group, loss group, or loss subgroup, is treated as a single
corporation under §1.382-8(f). Component members of a controlled group can elect
under §1.382-8(c)(2) to restore some or all of the value to the member whose value is
reduced under §1.382-8(c)(1). The election to restore value is made following the
procedures set forth in §1.382-8(h).

The Election was required to be filed with Parent's consolidated income tax return and
with Electing Subsidiary’s income tax return for the taxable year that includes Date 2.
However, for various reasons, Parent and Electing Subsidiary failed to make the
Election in a timely manner. 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 section 6662 at the time of the request for relief.

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
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
PLR-120196-19                                  3

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., §1.382-8(h)).
Therefore, the Commissioner has discretionary authority under §301.9100-3 to grant an
extension of time for Parent and Electing Subsidiary to file the Election, provided Parent
and Electing Subsidiary show they 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 Professionals explain the circumstances that resulted in the failure to timely file the
Election. The information establishes that Parent requested relief before the failure to
make the regulatory election was discovered by the Service and that Parent reasonably
relied on a qualified tax professional who failed to make, or advise it to make, the
Election. See §§301.9100-3(b)(1)(i) and (v).

Based on the facts and information submitted, including the affidavits submitted and the
representations that have been made, we conclude that Parent and Electing Subsidiary
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 §301.9100-3 until 60 days from the
date on this letter for Parent and Electing Subsidiary to file the Election in accordance
with §1.382-8(h).

The above extension of time is conditioned on the relevant taxpayers' 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 relevant taxpayers' tax liability for the years involved.
A determination thereof will be made by the Director's office upon audit of the federal
income tax returns involved.

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, we express no opinion with respect to whether an ownership
change occurred; whether Parent and Electing Subsidiary are component members of a
controlled group; or the amount of value, if any, that may be restored. Further, 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.
PLR-120196-19                                  4

For purposes of granting relief under §301.9100-3, we relied on certain statements and
representations made by Parent, Company Official, and Tax Professionals under
penalties of perjury. However, the Director should verify all essential facts. Moreover,
notwithstanding that an extension is granted under §301.9100-3 to file the Election, any
penalties and interest that would otherwise be applicable 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.

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

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representatives.

                                       Sincerely,



                                       T. Ian Russell
                                       Chief, Branch 1
                                       Office of Associate Chief Counsel (Corporate)



cc: