90-day extension for a consolidated group to elect to waive its NOL carryback period

Plain-English summary

When a group of affiliated corporations files one consolidated tax return and reports a net operating loss (NOL), it can normally carry that loss back to earlier years to recover past taxes, or it can make an irrevocable election under Treas. Reg. § 1.1502-21(b)(3)(i) to waive the whole carryback period and instead carry the loss forward. The election must be attached to the return for the year the loss arises. Here the common parent of a consolidated group intended to waive the carryback and even reported the loss as if the election had been made, but the required election statement was never actually filed, and the deadline passed. The parent asked the IRS for relief under the section 301.9100-3 late-election rules. Because the parent reasonably relied on a tax professional who failed to make the election, acted in good faith, and granting relief would not prejudice the government, the IRS granted a 90-day extension to file the election. Relief is conditioned on the group's total tax not being lower than if the election had been timely made (accounting for the time value of money), and any otherwise-applicable penalties and interest still apply.

Ruling snapshot

• Question: May a consolidated group get more time to make a late election under Treas. Reg. § 1.1502-21(b)(3)(i) to relinquish its NOL carryback period?
• Outcome: approved
• Key authorities: IRC § 172(b)(3); Treas. Reg. § 1.1502-21(b)(3)(i); 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: 202229006                                               Third Party Communication: None
 Release Date: 7/22/2022                                         Date of Communication: Not Applicable
 Index Number: 9100.22-00, 1502.21-00
                                                                 Person To Contact:
 ----------------------------                                    ---------------------, ID No. -----------------
 -------------------------------------                           Telephone Number:
 -------------------------------------------------               --------------------
 -----------------------------------                             Refer Reply To:
                                                                 CC:CORP:2
                                                                 PLR-100596-22
                                                                 Date:
                                                                 April 27, 2022




Legend

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

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

 Year 1                      =      -------

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

 Tax Professional            =      ---------------------------------------------------------------
                                    ----------------------------------------


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

This letter responds to a letter dated December 10, 2021, submitted on behalf of Parent,
requesting an extension of time under §§301.9100-1 through 301.9100-3 of the
Procedure and Administration Regulations to make an election. The extension is being
requested for Parent to make an election under §1.1502-21(b)(3)(i) to relinquish the
entire carryback period for the consolidated net operating loss ("CNOL") for the
consolidated group of which Parent was the common parent (the "Parent Group") for
the tax year ending Date 1 (the "Election"). The material information submitted for
consideration is summarized below.

The Parent Group incurred a CNOL for the tax year ended on Date 1 (the "Year 1
CNOL"). Parent intended to relinquish the carryback period for the Year 1 CNOL on its
consolidated tax return for the tax year ending Date 1, and reported the Year 1 CNOL in
PLR-100596-22                                2

a manner consistent with a valid election under §1.1502-21(b)(3)(i) having been made.
However, for various reasons, a valid election was not filed. After the date the Election
was due, it was discovered that a valid election had not been filed. Subsequently, this
request was submitted for an extension of time to file a valid election.

Parent has represented that the Parent Group has not carried back, and will not carry
back, any portion of the Year 1 CNOL to a prior consolidated return year of the Parent
Group. Appropriate representations have been received from Parent and other parties
indicating that no portion of the Year 1 CNOL has been or will be carried back to a prior
separate return year (within the meaning of §1.1502-1(e)) of any member of the Parent
Group. Parent also has represented that it is not seeking to alter a return position for
which an accuracy-related penalty has been or could be imposed under section 6662.

Section 1.1502-21(b)(3)(i) provides that a consolidated group may make an irrevocable
election under section 172(b)(3) to relinquish the entire carryback period with respect to
a CNOL for any consolidated return year. The election is made in a separate statement
entitled "THIS IS AN ELECTION UNDER §1.1502-21(b)(3)(i) TO WAIVE THE ENTIRE
CARRYBACK PERIOD PURSUANT TO SECTION 172(b)(3) FOR THE [insert
consolidated return year] CNOLs OF THE CONSOLIDATED GROUP OF WHICH [insert
name and employer identification number of common parent] IS THE COMMON
PARENT." Section 1.1502-21(b)(3)(i) also provides that the statement must be filed
with the group's income tax return for the consolidated return year in which the loss
arises.

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
regulatory 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 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)(i)). Therefore, the Commissioner has discretionary authority under § 301.9100-
1 to grant an extension of time for Parent to file the Election, provided Parent
establishes it 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.
PLR-100596-22                                 3


Information, affidavits, and representations submitted by Parent, Company Official, and
Tax Professional explain the circumstances that resulted in the failure to timely file a
valid election. The information establishes that Parent reasonably relied on a qualified
tax professional who failed to make, or advise Parent to make, the Election. See
§§301.9100-3(b)(1)(v).

Based on the facts and information submitted, including the representations made, we
conclude that Parent has shown it 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
§301.9100-1, until 90 days from the date on this letter, for Parent to file the Election with
respect to the relinquishment of the entire carryback period for the CNOL for the tax
year ending Date 1, as described above.

The above extension of time is conditioned on the taxpayers' (Parent and the members
of the Parent Group) 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 by
the Director's office upon audit of the federal income tax returns involved.

Parent must file the Election in accordance with §1.1502-21(b)(3)(i). The Parent
Group's tax return for the tax year ending Date 1 must be amended to attach the
election statement required by §1.1502-21(b)(3)(i). A copy of this letter must be
attached to the election statement. Alternatively, if the Parent Group files its returns
electronically, Parent may satisfy this latter requirement by attaching a statement to its
return that provides the date on, and control number (PLR-100596-22) of, this letter
ruling.

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 and regulations, or as to the tax
treatment of any conditions existing at the time of, or resulting from, filing the Election
late that are not specifically set forth in the above ruling.

For purposes of granting relief under §301.9100-1, we have relied on certain statements
and representations made by Parent, Company Official, Tax Professional, and other
parties. However, the Director should verify all essential facts. Moreover,
notwithstanding that an extension is granted under §301.9100-1 to file the Election,
penalties and interest that would otherwise be applicable, if any, continue to apply.

This letter is directed only to the 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, copies of this letter are
PLR-100596-22                               4


being sent to your authorized representatives.

                                     Sincerely,



                                     Thomas I. Russell_
                                     Thomas I. Russell
                                     Chief, Branch 1
                                     Office of Associate Chief Counsel (Corporate)


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