Corporate group receives 120 days for late GILTI high-tax election

Plain-English summary

A U.S. corporate group wanted to make the GILTI high-tax exclusion election for
income of its wholly owned controlled foreign corporation. Its accounting firm
recognized the benefit before the 24-month amended-return deadline, but deferred
the prior-year filing, lost the international tax partner assigned to the work,
and later incorrectly advised that the election could be reflected through a
revised net operating loss carryforward. A new international tax partner
discovered the missed deadline after it had expired. The taxpayer represented
that the election had been beneficial from the outset, affected only the group,
would increase a consolidated net operating loss carried into open years, and
would not reduce aggregate tax below the result of a timely election. The IRS
found that the regulatory relief requirements were satisfied. It granted 120
days to attach the election statement to a Form 1120X for the affected year.

Ruling snapshot

• Question: May a consolidated group make a late GILTI high-tax exclusion
  election after its tax adviser missed the 24-month amended-return deadline?
• Outcome: Approved. The group received a 120-day extension.
• Key authorities: IRC §§ 951A, 953, 954, 957, and 964; Treas. Reg.
  §§ 1.951A-2(c)(7)(viii), 1.964-1(c), 301.9100-1, and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202313007 Third Party Communication: None
Release Date: 3/31/2023 Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.22-00,
951A.00-00, 951A.02-00 Person To Contact:
------------------, ID No. -----------------
--------------------- Telephone Number:
----------------------------------- --------------------
--------------------------- Refer Reply To:
---------------------------- CC:INTL:B02
PLR-116492-22
Date:
December 27, 2022

             TY:

Legend

X = -------------------------------------------------------------
Y = ----------------------------------------------------
Tax Year 1 = ----------------------------------------------------------
Tax Year 2 = ----------------------------------------------------------
Tax Year 3 = -----------------------------------------------------
Date 1 = ------------------

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

This letter responds to a letter dated August 29, 2022, submitted on behalf of X and the
U.S. consolidated group of which it is the common parent, by its authorized
representatives, requesting an extension of time under Treas. Reg. §301.9100-3 of the
Procedure and Administration Regulations for X to file a global intangible low-taxed
income (GILTI) high-tax exclusion election (GILTI HTE Election) under Treas. Reg.
§1.951A-2(c)(7)(viii) with respect to Y, X’s controlled foreign corporation (as defined in
section 957(a)) (CFC), for the CFC inclusion year (as defined in Treas. Reg. §1.951A-
1(f)(1)) that ends with or within X’s U.S. shareholder inclusion year (as defined in Treas.
Reg. §1.951A-1(f)(7)), Tax Year 1.

FACTS

X, a domestic corporation, is the common parent of a U.S. consolidated group. A
member of the U.S. consolidated group, of which X is the common parent, is the sole
owner of Y and X is the controlling domestic shareholder (as defined in Treas. Reg.
§1.964-1(c)(5)) of Y. X’s federal tax compliance was the responsibility of its Chief

PLR-116492-22 2

Financial Officer, but X did not have an internal tax department. X engaged the tax
consulting and tax return preparation services of an accounting firm to advise the Chief
Financial Officer and prepare necessary tax documents. X timely filed (before the
issuance of the final GILTI HTE Election regulations1) a Form 1120 for Tax Year 1.

During the preparation of X’s Form 1120 for Tax Year 2 and after the release of the final
GILTI HTE regulations, X’s accounting firm informed X of the availability and benefit of
making a GILTI HTE Election for Tax Year 1. At this point (before the 24-month period
described in Treas. Reg. §1.951A-2(c)(7)(viii)(A)(2)(ii) had expired), X directed its
accounting firm to make the election on the Tax Year 2 return and noted its intent to
make the election for Tax Year 1. However, the Tax Year 1 election, including any
discussion of the requirements to make such an election, was deferred until after the
Tax Year 2 return was filed. Before the engagement team could address the Tax Year
1 GILTI HTE election, the international tax partner assigned to the engagement team
left the firm and was not immediately replaced.

The remaining engagement team was unaware of the specific process and timing
required to claim the benefit for the GILTI HTE Election, and a member of the
engagement team incorrectly advised X that because the Tax Year 1 election would
merely increase the amount of a consolidated net operating loss (CNOL), X could make
the election via a revised CNOL carryforward reported on X’s Year 3 income tax return.
At no point did the accounting firm advise X that an amended return was required by the
end of the 24-month period described in Treas. Reg. §1.951A-2(c)(7)(viii)(A)(2)(ii). The
plan to revise the CNOL carryforward was discussed with X’s Chief Financial Officer,
and it was contemplated that the GILTI HTE Election for Tax Year 1 would be
completed as part of the Tax Year 3 return.

After Date 1 (the date that was 24 months after the unextended due date for the Tax
Year 1 return) a new international tax partner was added to X’s engagement team for
the preparation of the Tax Year 3 return. She reviewed the issue and informed the
engagement team of the specific requirements of the election, including the fact that the
regulatory time for making the election had expired.

X is not under examination for Tax Year 1 or any other year in which the election is
relevant.

X represents that granting the relief requested will not result in X having a lower tax
liability in the aggregate for all affected years than X would have had if the election had
been timely made. X also represents that the effect of the election is an increase to the
amount of its CNOL carryforward into open tax years and the election does not produce
any underpayment (or overpayment) in any closed year. X represents that no facts
have changed that would indicate the use of hindsight and that the election would have
been beneficial from the beginning. Further, the U.S. consolidated group, of which X is
the common parent, wholly owns Y; therefore, X and the U.S. consolidated group of

1 T.D. 9902, 85 FR 44620. Before the filing of X’s original Form 1120 for Tax Year 1, X could not make
the GILTI HTE Election because the GILTI HTE Regulations had not been finalized and the election was
not available. As such, X had not discussed the effect of the election with its accounting firm.

PLR-116492-22 3

which it is the common parent are the only taxpayers affected by the GILTI HTE
Election.

LAW AND ANALYSIS

Section 951A(a) provides that a U.S. shareholder of any CFC for any taxable year of the
U.S. shareholder must include in gross income the shareholder’s GILTI for that taxable
year.

Section 951A(b) provides that the term GILTI means, with respect to any U.S.
shareholder for any taxable year of such U.S. shareholder, the excess (if any) of such
shareholder’s net CFC tested income for such taxable year, over such shareholder’s net
deemed tangible income return for such taxable year.

Section 951A(c)(1) generally provides that the term “net CFC tested income” means,
with respect to any U.S. shareholder for any taxable year of such U.S. shareholder, the
excess (if any) of the aggregate of such shareholder’s pro rata share of the tested
income of each CFC with respect to which such shareholder is a U.S. shareholder for
such taxable year of such U.S. shareholder, over the aggregate of such shareholder’s
pro rata share of the tested loss of each CFC with respect to which such shareholder is
a U.S. shareholder for such taxable year of such U.S. shareholder.

Section 951A(c)(2)(A) provides that the term “tested income” means, with respect to any
CFC for any taxable year of such CFC, the excess (if any) of the gross income of such
corporation determined without regard to certain items of income, including any gross
income excluded from the foreign base company income (as defined in section 954)
and the insurance income (as defined in section 953) of such corporation by reason of
section 954(b)(4), over the deductions (including taxes) properly allocable to such gross
income under rules similar to the rules of section 954(b)(5) (or to which such deductions
would be allocable if there were such gross income).

Section 1.951A-2(c)(7)(i) generally provides that for purposes of determining the tested
income of a CFC, a tentative gross tested income item (determined under §1.951A-
2(c)(7)(ii)(A)) qualifies for the exception described in section 954(b)(4) only if a GILTI
HTE Election is effective with respect to the CFC for the CFC inclusion year (as defined
in §1.951A-1(f)(1)) and the tentative tested income item with respect to the tentative
gross tested income item was subject to an effective rate of foreign tax that is greater
than 90 percent of the maximum rate of tax specified in section 11.

Section 1.951A-2(c)(7)(viii) provides that the GILTI HTE Election is made by the
controlling domestic shareholder with respect to a CFC for a CFC inclusion year by filing
the statement required under §1.964-1(c)(3)(ii) with a timely filed original federal income
tax return, or with an amended federal income tax return, for the U.S. shareholder
inclusion year of each controlling domestic shareholder in which or with which such
CFC inclusion year ends; providing any notices required under §1.964-1(c)(3)(iii); and
providing any additional information required by applicable administrative
pronouncements.

PLR-116492-22 4

Section 1.951A-2(c)(7)(viii)(A)(2)(i) generally provides that a controlling domestic
shareholder may make the election with an amended federal income tax return, duly
filed within 24 months of the unextended due date of the original federal income tax
return for the U.S. shareholder inclusion year with or within which the CFC inclusion
year ends.

Section 1.951A-2(c)(7)(viii)(D) provides that a GILTI HTE Election is valid only if all of
the requirements in Treas. Reg. §1.951A-2(c)(7)(viii)(A) are satisfied.

Section 301.9100-1(c) provides that the Commissioner may 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.

Section 301.9100-1(b) defines the term “regulatory election” as an election whose due
date is prescribed by a regulation published in the Federal Register or a revenue ruling,
revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Section 301.9100-2 provides automatic extensions of time for making certain elections.

Section 301.9100-3 provides rules for requesting extensions of time for regulatory
elections that do not meet the requirements of Treas. Reg. §301.9100-2. It provides
that these requests for relief are granted when the taxpayer provides the evidence
(including affidavits) to establish to the satisfaction of the Commissioner that the
taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the
interests of the Government. A taxpayer is deemed to have acted reasonably and in
good faith if, among other reasons, the taxpayer failed to make the election because,
after exercising reasonable diligence (taking into account the taxpayer's experience and
the complexity of the return or issue), the taxpayer was unaware of the necessity for the
election. Treas. Reg. §301.9100-3(b)(iii). A taxpayer is also deemed to have acted
reasonably and in good faith if the taxpayer 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. Treas. Reg.
§301.9100-3(b)(v).

Section §301.9100-1(a) provides that the granting of an extension of time for making an
election is not a determination that a taxpayer is otherwise eligible to make the election
or that a taxpayer has complied with the other requirements for a valid election.

CONCLUSION

Based on the facts provided and representations made, we conclude that the
requirements of Treas. Reg. §§301.9100-1 and 301.9100-3 have been satisfied. X is
hereby granted an extension of time of one hundred twenty (120) days to make a GILTI
HTE Election with respect to Y for the CFC inclusion year that ends with or within X’s
U.S. shareholder inclusion year, Tax Year 1. X should make the election in a written
statement attached to a duly filed Form 1120X for Tax Year 1.

PLR-116492-22 5

The ruling contained in this letter is based upon information and representations
submitted by the 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 the request for ruling, it is subject to verification on examination.

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 of the
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,

                                       /s/ Larry R. Pounders

                                       Larry R. Pounders
                                       Senior Counsel, Branch 2
                                       Associate Chief Counsel (International)

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