75-day extension to elect apportionment of a consolidated section 382 limitation to a departing subgroup

Plain-English summary

Two corporate consolidated groups asked the IRS for more time to file an election that splits up a tax attribute when a subgroup leaves one group and joins another. Section 382 limits how much of a company's built-up losses can be used each year after an ownership change. When a subgroup that carries such a limitation departs a consolidated group, Treas. Reg. § 1.1502-95(c) lets the selling group's parent elect to apportion all or part of the consolidated section 382 limitation to the departing subgroup, but the election has to be filed on time by both the old parent and the departing member. Here a subgroup was acquired by a second group, triggering an ownership change, and both parents missed the filing deadline. Under the section 301.9100-3 late-election rules, the IRS found the parents acted reasonably and in good faith and that relief would not prejudice the government, so it granted a 75-day extension to file the election by amending their returns. The relief is conditioned on the election not lowering the taxpayers' aggregate tax liability compared with a timely election, and penalties and interest, if any, still apply.

Ruling snapshot

• Question: May the parents of consolidated groups get more time to make the Treas. Reg. § 1.1502-95(c) election apportioning a consolidated section 382 limitation to a departing subgroup?
• Outcome: approved
• Key authorities: IRC § 382; Treas. Reg. § 1.1502-95(c) and (f); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202229030                                              Third Party Communication: None
 Release Date: 7/22/2022                                        Date of Communication: Not Applicable
 Index Number: 1502.00-00, 1502.98-00,
               1502.98-05, 9100.00-00,                          Person To Contact:
               9100.22-00                                       ---------------------------, ID No. ---------------
                                                                -----------------
 ----------------------------------------------                 Telephone Number:
 --------------------                                           --------------------
 -------------------------------                                Refer Reply To:
 ---------------------------------------                        CC:CORP:1
                                                                PLR-123545-21
                                                                Date:
                                                                April 20, 2022




Legend

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

Parent2                   =        --------------------------------
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Corp1                     =        -----------
                                   -----------------------

Corp2                     =        -------------------
                                   -----------------------

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

Company Officials =                ------------------------------------------------
                                   -----------

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

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

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

                                   --------------------------------
PLR-123545-21                                 2

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


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

This letter responds to a letter dated October 25, 2021, submitted on behalf of Parent
and Parent2, requesting an extension of time under §301.9100-3 of the Procedure and
Administration Regulations to file an election. Parent and Parent2 are requesting an
extension of time to file an election under §1.1502-95(c) of the Income Tax Regulations
to apportion all or any part of a consolidated section 382 limitation to the Corp2
Subgroup (the "Election"). The material information submitted for consideration is
summarized below.

Parent is the common parent of a federal consolidated group (the "Parent Group").
Parent2 is the common parent of a federal consolidated group (the "Parent2 Group").

Prior to Date1, the Parent Group included Corp1 and its subsidiaries (the "Corp1
Subgroup"), and the Corp1 Subgroup included Corp2 and its subsidiaries (the "Corp2
Subgroup"). On Date1, Parent2 acquired (through a disregarded entity for federal tax
purposes) all the outstanding stock of Corp2. As a result of the acquisition, the Corp2
Subgroup experienced an ownership change and became members of the Parent2
Group. At that time, the Corp1 Subgroup had a section 382 limitation from a prior
ownership change experienced by Corp1.

Under §1.1502-95(c), the common parent of a consolidated group may elect to
apportion all or any part of a consolidated section 382 limitation to a former member (or
loss subgroup) as well as all or any part of the loss group's net unrealized built-in gain to
a former member (or loss subgroup). The election is made following the procedures set
forth in §1.1502-95(f). Section 1.1502-95(f)(3) provides, in general, that the election
statement under §1.1502-95(f)(1)(i) must be filed by the common parent on or with its
income tax return for the taxable year in which the former member (or new loss
subgroup) ceases to be a member, and an identical statement must be included on or
with the first return of the former member (or the first return in which the former
member, or the members of a new loss subgroup, join) that is filed after the close of the
consolidated return year of the group of which the former member (or the members of a
new loss subgroup) ceases to be a member.

For various reasons, Parent and Parent2 failed to make the Election in a timely manner.
Parent and Parent2 have represented that they are not seeking to alter a return position
for which an accuracy-related penalty has been or could have been imposed under
section 6662.

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
PLR-123545-21                                   3

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
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 regulations (i.e., §1.1502-95(f)(3)).
Therefore, the Commissioner has discretionary authority under §301.9100-3 to grant an
extension of time for Parent and Parent2 to file the Election, provided they show that
their actions were reasonable and in good faith, the requirements of §§301.9100-1 and
301.9100-3 are satisfied, and that granting relief will not prejudice the interests of the
government.

Information, affidavits, and representations submitted by Parent, Parent2, Company
Officials, and Tax Professionals explain the circumstances that resulted in the failure to
timely file the Election. The submission 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 Parent and Parent2 have shown 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. Accordingly, an extension of time is
granted under §301.9100-3, until 75 days from the date on this letter, for Parent and
Parent2 to file the Election. Parent and Parent2 should amend their returns to attach
the Election, following the requirements of §1.1502-95(f). A copy of this letter must be
attached to the returns. Alternatively, Parent and Parent2 may satisfy the requirement
of attaching a copy of this letter by attaching a statement to their returns that provides
the date on, and control number (PLR-123545-21) of, this letter ruling.

The above extension of time is conditioned on the taxpayers' tax liability (if any) not
being lower, in the aggregate, for all the 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. In addition, we express no opinion as to the tax effects or consequences of
PLR-123545-21                                 4

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.

For purposes of granting relief under §301.9100-3, we relied on certain statements and
representations made by Parent, Parent2, Company Officials, and Tax Professionals
under penalties of perjury. However, the Director should verify all essential facts. In
addition, notwithstanding that an extension is granted under §301.9100-3 to file the
Election, penalties and interest that would otherwise be applicable, if any, continue to
apply.

This ruling is directed only to the taxpayers requesting it. Section 6110(k)(3) of the
Code 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
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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