Taxpayer gets 45 days to attach missing accounting-method form

Plain-English summary

A corporation intended to change two subsidiaries' Section 263A accounting methods and timely sent a copy of Form 3115 to the IRS. Its accounting firm failed to attach the original form to the consolidated return, although the return and later returns were prepared as if the changes had been implemented. The IRS found that the regulatory-relief requirements were met and allowed 45 days to file the missing form. The form must match the previously submitted copy, and the taxpayer may not otherwise revise the return. The IRS did not decide whether the method changes qualified for automatic consent or whether the resulting methods were correct.

Ruling snapshot

• Question: May the taxpayer receive extra time to attach the required Form 3115 for two accounting-method changes?
• Outcome: Approved. The IRS granted a 45-day extension subject to strict filing conditions.
• Key authorities: Treas. Reg. §§ 1.446-1, 301.9100-1, and 301.9100-3; Rev. Proc. 2015-13

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202115003 Third Party Communication: None
Release Date: 4/16/2021 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
---------------------------------------------------- ---------------------------
--------------------------------------- ID No. ------------
------------------------------------ Telephone Number:
---------------------------------------------- --------------------
Refer Reply To:
In Re: ---------------------------------------------------- CC:ITA:B06
------------------------------------------------------------ PLR-125219-20
Date:
January 21, 2021

Legend:

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

Tax Year = -------

X = -----------------------------------------------------------------------------------------

Subsidiaries = --------------------------------

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

Y = --------------------------------------------------------------------------------------------------------------

Accounting Firm = ---------------

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

This letter is in reply to a request for a private letter ruling made by Taxpayer. Taxpayer
requested an extension of time under sections 301.9100-1(c) and 301.9100-3 of the
Procedure and Administration Regulations to file Form 3115, Application For Change in
Accounting Method, for Tax Year. This letter ruling is being issued electronically in
accordance with Rev. Proc. 2020-29, 2020-21 I.R.B. 859. A paper copy will not be
mailed to Taxpayer.
PLR-125219-20 2

                                     FACTS

Taxpayer is a C Corporation that is 100 percent owned by X. Taxpayer states that it
files a consolidated Federal income tax return with its wholly owned subsidiaries,
Subsidiaries. Through its Subsidiaries, Taxpayer distributes and markets Y. Taxpayer
files its consolidated return on the basis of a calendar year and uses an overall accrual
method of accounting for Federal income tax purposes.

Taxpayer retained the services of Accounting Firm to assist in preparing its consolidated
Federal income tax return for Tax Year. Based upon the recommendation of
Accounting Firm, Taxpayer decided to file Form 3115 to change two of the methods of
accounting for Subsidiaries. The accounting methods would be changed beginning with
Tax Year.

The two changes in method of accounting both involved section 263A of the Internal
Revenue Code. These changes were to the Simplified Service Cost Method and the
Simplified Production Method without the historic absorption ratio election. Both of
these changes Taxpayer believed could be made using the automatic consent
procedures of Rev. Proc. 2015-13, 2015-5 I.R.B. 419. Additionally, Taxpayer believed
that by making these changes, Subsidiaries would be in full compliance with the rules
under section 263A.

Taxpayer has represented that its consolidated Federal income tax return for Tax Year
and any subsequent tax year(s) was(were) prepared as if the two accounting method
changes had been properly procedurally implemented. However, Taxpayer admits that
it failed to procedurally implement the changes properly for Tax Year.

Regarding the filing of the consolidated Federal income tax return for Tax Year,
Taxpayer represents that it timely mailed the required copy of Form 3115 to the
appropriate office of the Internal Revenue Service (IRS) as required by Rev. Proc.
2015-13. Taxpayer also represents that this return was timely filed. However, Form
3115 was not attached to this tax return.

Upon realizing this mistake, Accounting Firm informed Taxpayer and promptly prepared
this request for a letter ruling to obtain an extension of time under sections 301.9100-
1(c) and 301.9100-3 to file the missing Form 3115.

                             RULING REQUESTED

Taxpayer requests an extension of time for filing the required Form 3115 for Tax Year
under sections 301.9100-1(c) and 301.9100-3.
PLR-125219-20 3

                               LAW AND ANALYSIS

Section 301.9100-1(c) provides that the Commissioner has the discretion to grant a
reasonable extension of time under the rules set forth in sections 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 regulations published
in the Federal Register, or in a revenue ruling, revenue procedure, notice, or
announcement published in the Internal Revenue Bulletin.

The requested accounting method changes are regulatory elections as defined under
section 301.9100-1(b) because the due date of the changes are prescribed in section
1.446-1 of the Income Tax Regulations and section 6.03(3)(a) of Rev. Proc. 2015 -13.

Section 301.9100-2 provides for automatic extensions of time for making certain
elections. Section 301.9100-3 provides for extensions of time for making elections that
do not meet the requirements of section 301.9100-2. Taxpayer’s request for an
extension of time must be analyzed under the requirements of section 301.9100-3
because the automatic provisions of section 301.9100-2 are not applicable.

Requests for relief under section 301.9100-3 will be granted when a taxpayer provides
evidence to establish to the satisfaction of the Commissioner (i) that the taxpayer acted
reasonably and in good faith and (ii) that granting relief will not prejudice the interest of
the government. See section 301.9100-3(a).

Section 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted reasonably
and in good faith if the taxpayer:

(i) requests relief before the failure to make a regulatory election is discovered by
the IRS;
(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 of the election;
(iv) reasonably relied on written advice of the IRS; or
(v) reasonably relied on a qualified tax professional, including a tax professional
employed by the taxpayer, 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 not to have 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;
PLR-125219-20 4

(ii) was informed in all material respects of the required election and related tax
consequences and chose not to file the election; or
(iii) uses hindsight in requesting relief.

Section 301.9100-3(c)(i) 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 tax years affected by the election than the taxpayer would have had if the election
had been timely made (taking into account the time value of money). The section also
provides that, if the tax consequences of more than one taxpayer are affected by the
election, the government’s interests are prejudiced if extending the time for making the
election may result in the affected taxpayers, in the aggregate, having a lower tax
liability than if the election had been timely made.

Section 301.9100-3(c)(1)(ii) provides, in part, that the interests of the government are
ordinarily prejudiced if the tax year in which the regulatory election should be been
made, or any tax years that would have been affected by the election had it been
timely made, are closed by the period of limitations on assessment under section
6501(a) before the taxpayer’s receipt of a ruling granting relief under this section.

                                  CONCLUSION

On the basis of Taxpayer’s representations, we conclude that the requirements of
sections 301.9100-1(c) and 301.9100-3 have been satisfied. Accordingly, we hereby
grant an extension of time for Taxpayer to file the original Form 3115 that should have
been attached to its consolidated Federal income tax return that was filed for Tax Year.
This Form 3115 must be identical to the copy of the Form 3115 that had been filed with
the appropriate IRS office. No other revision to the consolidated Federal income tax
return filed for Tax Year can be made. This extension shall be for a period of 45 days
from the date of this letter ruling.

Except as expressly set forth above, we neither express nor imply any opinion
concerning the tax consequences of the facts described above under any other
provision of the Code or regulations. Specifically, we have no opinion, either expressed
or implied, concerning whether the accounting method changes Taxpayer has
attempted to make on Subsidiaries’ behalf are eligible to be made under the automatic
consent procedures of Rev. Proc. 2015-13. Further, no opinion is expressed regarding
the correctness of Subsidiaries’ Simplified Service Cost Method or Simplified Production
Method without the historic absorption ratio election. Lastly, no opinion is expressed
regarding the filing of consolidated Federal income tax return by Taxpayer.

The ruling contained in this letter is based upon information and representations
submitted by Taxpayer 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 this request for an extension of time to file the required Form 3115, all
material is subject to verification on examination.
PLR-125219-20 5

This ruling is directed only to Taxpayer, who requested 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, a copy of this letter is
being sent to each of Taxpayer’s authorized representatives.

                                               Sincerely,




                                               Cheryl L. Oseekey
                                               Senior Counsel, Branch 6
                                               Office of Associate Chief Counsel
                                               (Income Tax & Accounting)

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