Consolidated group gets 75 days to make a late election waiving carryback of an acquired subsidiary's losses

Plain-English summary

A consolidated group acquired a target company and its subsidiaries that had previously been part of another consolidated group. To keep the acquired members' consolidated net operating losses from being carried back into the former group's returns, the acquiring group needed to file a waiver election under Treasury Regulation section 1.1502-21(b)(3)(ii)(B) with its consolidated return, but a valid election was not filed on time. It sought relief under Treasury Regulation section 301.9100-3, which lets the IRS extend the deadline for certain elections when the taxpayer acted reasonably and in good faith and granting relief will not prejudice the government. The IRS found those standards met, noting the request came before the IRS discovered the lapse, and granted 75 days from the letter to file the waiver election. It matters because it shows how an acquirer preserves post-acquisition use of a target's losses by waiving the carryback to the seller's group, even after missing the filing deadline.

Ruling snapshot

• Question: Will the IRS extend the deadline for a consolidated group to file a late election waiving the carryback of an acquired member's consolidated net operating losses?
• Outcome: Approved (75 days from the letter to file the waiver election)
• Key authorities: Treas. Reg. § 1.1502-21(b)(3)(ii)(B) (and IRC § 172); Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202147006 Third Party Communication: None
Release Date: 11/26/2021 Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.22-00
Person To Contact:
--------------------------------------------------------- ------------------------, ID No. ---------------
--------------------------------------------------------- Telephone Number:
------------------ ---------------------
--------------------------------- Refer Reply To:
CC:CORP:3
PLR-105869-21
Date:
September 02, 2021

Legend

Acquiring = --------------------------------------------
-------------------------------
------------------------

Target = ---------------------------
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Former Parent = ------------------------------
-------------------------------
------------------------

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

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

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

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

This letter responds to a letter dated March 12, 2021, requesting, on behalf of Acquiring,
an extension of time under §301.9100-3 of the Procedure and Administration
Regulations to file an election. The extension is being requested for Acquiring to file an
election under §1.1502-21(b)(3)(ii)(B) of the Income Tax Regulations to relinquish, with
respect to all consolidated net operating losses ("CNOLs") attributable to Target and its
subsidiaries ("Subsidiaries"), the portion of the carryback period for which Target and
Subsidiaries were members of Former Parent's consolidated group (the "Election").
The material information submitted for consideration is summarized below.
PLR-105869-21 2

Prior to becoming members of the Acquiring consolidated group, Target and
Subsidiaries were members of the Former Parent consolidated group and were included
in the consolidated federal income tax return of Former Parent. On Date1, Acquiring
acquired Target and Subsidiaries. For the taxable year ending Date2, Acquiring and its
includible subsidiaries (the "Acquiring Group") timely filed a consolidated federal income
tax return.

Section 1.1502-21(b)(3)(ii)(B) required the Election to be filed with the Acquiring Group
consolidated return for the taxable year ending Date2, but for various reasons, a valid
Election was not filed. Subsequently, this request was submitted, under §301.9100-3,
for an extension of time to file the Election.

It has been represented that none of the CNOLs from the Acquiring Group for the
taxable year ending Date2, or any subsequent year, has been carried back, nor will be
carried back, to a prior return year of any member (or predecessor) of the Acquiring
Group, including a consolidated return which includes any member (or predecessor).

Section 1.1502-21(b)(3)(ii)(B) provides that if one or more members of a consolidated
group become members of another consolidated group, the acquiring consolidated
group may elect to relinquish, with respect to all CNOLs attributable to the member, the
portion of the carryback period for which the corporation was a member of another
group. This election is available provided that any other corporation joining the
acquiring group that was affiliated with the member immediately before it joined the
acquiring group is also included in the waiver. This election is not a yearly election and
applies to all losses that would otherwise be subject to a carryback to a former group
under section 172. The election is made in a separate statement entitled “THIS IS AN
ELECTION UNDER SECTION 1.1502-21(b)(3)(ii)(B) TO WAIVE THE PRE-[insert first
taxable year for which the member (or members) was not a member of another group]
CARRYBACK PERIOD FOR THE CNOLs attributable to [insert names and employer
identification number of members].” Section 1.1502-21(b)(3)(ii)(B) provides that the
statement must be filed with the acquiring consolidated group's original income tax
return for the year the corporation (or corporations) became a member.

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. Section 301.9100-3 provides extensions of time for making
certain elections that do not meet the requirements of §301.9100-2. Requests for relief
under §301.9100-3 will be granted when the taxpayer provides evidence to establish to
PLR-105869-21 3

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)(ii)(B)). Therefore, the Commissioner has discretionary authority under
§301.9100-3 to grant an extension of time for Acquiring to file the Election, provided
Acquiring 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 Acquiring and Company
Official explain the circumstances that resulted in the failure to timely file a valid
Election. The information establishes that the request for relief was filed before the
failure to make the Election was discovered by the Internal Revenue Service. See
§301.9100-3(b)(1)(i).

Based on the facts and information submitted, including the representations made, we
conclude that Acquiring has established that it acted reasonably and in good faith in
failing to timely file the Election, the requirements of §§301.9100-1 and 301.9100-3 are
satisfied, and granting relief will not prejudice the interests of the government.
Accordingly, we grant an extension of time under §301.9100-3, until 75 days from the
date on this letter, for Acquiring to file the Election.

Acquiring should file the Election in accordance with §1.1502-21(b)(3)(ii)(B). The
Acquiring Group's return must be amended to attach the election statement required by
§1.1502-21(b)(3)(ii)(B). 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
on, and control number (PLR-105869-21) of, the letter ruling.

The above extension of time is conditioned on the Acquiring 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 the taxpayers' tax liability for the years
involved. A determination thereof will be made 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.

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.
PLR-105869-21 4

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,

                                Thomas Russell
                                ________________________________
                                Thomas Ian Russell
                                Chief, Branch 1
                                Office of Associate Chief Counsel (Corporate)

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