Late relief to elect out of the bankruptcy loss rule under section 382(l)(5)

Plain-English summary

Section 382 limits how much of a corporation's past losses it can use after an ownership change. A special rule, section 382(l)(5), applies when the ownership change happens in bankruptcy (a title 11 case) and can replace the usual limit with its own set of restrictions. A corporation can elect out of section 382(l)(5) under Treasury Regulation § 1.382-9(i), but the election must be filed with the tax return for the year of the change. Here the common parent of a consolidated group went through an ownership change in bankruptcy but did not file the election on time. It asked the IRS for an extension under the "9100" relief rules in § 301.9100-3. The IRS found the group acted reasonably and in good faith and had asked for relief before the IRS discovered the missed election, so it granted 75 days to file. The relief is conditioned on the group's tax liability not ending up lower than it would have been with a timely election. This matters because whether section 382(l)(5) applies can significantly change how a bankrupt company uses its losses going forward.

Ruling snapshot

• Question: Should the taxpayer get an extension of time to file a late election under § 1.382-9(i) not to have section 382(l)(5) apply to its bankruptcy ownership change?
• Outcome: Approved (75-day extension granted, conditioned on tax liability not being lower than with a timely election)
• Key authorities: IRC § 382(l)(5) and (l)(5)(G); Treas. Reg. § 1.382-9(i); 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: 202235001                                             Third Party Communication: None
 Release Date: 9/2/2022                                        Date of Communication: Not Applicable
 Index Number: 382.12-13, 9100.00-00
                                                               Person To Contact:
 ------------------------------------                          -----------------------, ID No. -----------------
 ---------------------------------------                       Telephone Number:
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 -------------------------                                     Refer Reply To:
                                                               CC:CORP:04
                                                               PLR-100188-22
                                                               Date:
                                                               June 07, 2022




Legend

Taxpayer                  =        ---------------------------------------
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Date1                     =        ----------------------

Company Official          =        ----------------------------
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Tax Professionals         =        ---------------------------------------
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Dear -------------:

This letter responds to a letter dated December 10, 2021, submitted on behalf of
Taxpayer, requesting an extension of time under §301.9100-3 of the Procedure and
Administration Regulations to file an election under §1.382-9(i) of the Income Tax
Regulations not to have the provisions of section 382(l)(5) apply to an ownership
change in a title 11 or similar case (the "Election"). The material information submitted
is summarized below.

Taxpayer is the common parent of an affiliated group of corporations that files
consolidated federal income tax returns (the "Taxpayer Group"). Taxpayer has
represented that on Date 1, Taxpayer underwent an ownership change as defined in
section 382(g) and §1.1502-92(b)(1)(i), and that immediately before the ownership
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change on Date1, Taxpayer and certain of its subsidiaries were under the jurisdiction of
a court in a title 11 case.

Section 382(l)(5) provides that if certain requirements are met, section 382(a) shall not
apply to an ownership change. If section 382(l)(5) applies, certain limitations are placed
on a corporation.

Section 382(l)(5)(G) provides that a new loss corporation may elect, subject to such
terms and conditions as the Secretary may prescribe, not to have the provisions of
section 382(l)(5) apply. Any such election must be made by the due date (including any
extensions of time) of the loss corporation's tax return for the taxable year which
includes the change date. Section 1.382-9(i).

The Election was required to be filed by the due date (including any extensions of time)
of Taxpayer Group's tax return for the taxable year which includes Date1, but for various
reasons a valid Election was not filed. After the due date for the Election, it was
discovered that the Election had not been filed. Subsequently, this request was
submitted, under §301.9100-3, for an extension of time to file the Election. Taxpayer
has represented that it does not seek 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
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., §1.382-9(i)).
Therefore, the Commissioner has discretionary authority under §301.9100-3 to grant an
extension of time for Taxpayer to file the Election, provided Taxpayer 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.

The information, affidavits, and representations submitted by Taxpayer, Company
Official, and Tax Professionals explain the circumstances that resulted in the failure to
timely file a valid Election. The information establishes that the request for relief was
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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 Taxpayer has shown that 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 §301.9100-3, until 75 days from the date on this letter, for Taxpayer to file the
Election.

The above extension of time is conditioned on the taxpayer's (Taxpayer 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 taxpayer's tax
liability for the years involved. A determination thereof will be made upon audit of the
federal income tax returns involved. Further, no opinion is expressed as to the federal
income tax effect, if any, if it is determined that the taxpayer's tax liability is lower.
Section 301.9100-3(c).

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.

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 (PLR-
100188-22) of this 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 representative.

                                       Sincerely,


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

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