Subsidiary received 45 days to file the original Form 3115 after a due-date error

Plain-English summary

A corporate parent acquired a subsidiary in a transaction described as a tax-free merger, which ended the subsidiary's tax year. The subsidiary sought automatic accounting-method changes for capitalizable mixed service costs, but its advisers miscalculated when the original Form 3115 had to be attached to the short-year return. A signed copy had been filed with the proper IRS office, and the method changes were reflected in the subsidiary's financial statements and tax return. The IRS granted 45 days to file an identical original Form 3115, prohibited any other revision to the return, and did not rule that the proposed methods or transaction otherwise qualified for their claimed tax treatment.

Ruling snapshot

• Question: Could the subsidiary file the original Form 3115 late after advisers miscalculated the short-year return deadline?
• Outcome: Approved, with a 45-day extension and no other return revisions
• Key authorities: IRC §§ 263A, 446(e), and 481(a); Treas. Reg. §§ 1.263A-1 and 301.9100-1 through 301.9100-3; Rev. Proc. 2015-13

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202316004 [Third Party Communication:
Release Date: 4/21/2023 Date of Communication: Month DD, YYYY]
Index Number: 9100.10-01
Person To Contact:
--------------------- ---------------------, ID No. -----------------
------------------------------------- Telephone Number:
------------------------------- -------------------
Refer Reply To:
CC:ITA:B06
PLR-117336-22
Date:
January 17, 2023

In Re: -----------------------------

Legend

Taxpayer = ------------------------

Subsidiary = ---------------------------------------

Date A = ------------------

Date B = -------------------

Accounting Firm = -----------------------

Date C = ----------------

Date D = ------------------------

Date E = ----------------------

Date F = -----------------------

Date G = --------------------------

Agency = ---------------------------------------------------

Date H = -------------------

PLR-117336-22 2

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

This letter is in reply to a request for a private letter ruling made by Taxpayer on behalf
of Subsidiary. Taxpayer, on behalf of Subsidiary, has requested an extension of time
under sections 301.9100-1(c) and 301.9100-3 of the Procedure and Administration
Regulations to file the original of a Form 3115, Application For Change in Accounting
Method. This Form 3115 should have been filed on or before Date A, without
extension.

This letter ruling is being issued electronically in accordance with Rev. Proc. 2020-29,
2020-21 I.R.B. 859. A paper copy will not be mailed to Taxpayer.

                                      FACTS

Taxpayer is the common parent of an affiliated group of corporations, including
Subsidiary, that file a consolidated Federal income tax return. Taxpayer provides
investment banking products and services. Taxpayer files its consolidated return on the
basis of a calendar year and uses an overall accrual method of accounting for Federal
income tax purposes.

Taxpayer acquired Subsidiary on Date B in what Taxpayer has described as a “non-
taxable asset reorganization . . .that qualifies (as) a tax-free merger . . .described in
I.R.C. § 368(a)(1)(A).” Taxpayer says that “(a)s a result of (this transaction),
(Subsidiary)’s tax year ended on Date B, under I.R.C. § 381(b)(1).” .

Subsidiary retained the services of Accounting Firm “to perform a review of its methods
of accounting” on Date C. Accounting Firm, Taxpayer, and Subsidiary held
consultations and it was decided that Subsidiary would file a Form 3115 to change
various methods of accounting under IRC § 263A for its tax year ending on Date B.

Subsidiary’s Form 3115 “included changing (Subsidiary)’s method of determining
capitalizable mixed service costs for self-constructed assets from the direct allocation
method described in Treas. Reg. § 1.263A-1(g)(4)(iii)(A) to the 90-10 de minimis rule
described in Treas. Reg. § 1.263A-1(g)(4)(ii) and the step-allocation method described
in Treas. Reg. § 1.263A-1(g)(4)(iii)(B).” Accounting Firm believed these changes could
be made using the automatic consent procedures of Rev. Proc. 2015-13, 2015-5 I.R.B.
419.

It was believed that Subsidiary’s Form 3115 would be due on Date D, with an extended
due date of Date E. However, in fact, the Form 3115 was due on Date A, with an
extended due date of Date F.

Taxpayer has represented that Subsidiary filed a copy of the Form 3115 with the
appropriate office of the Internal Revenue Service (IRS) as required by Rev. Proc.

PLR-117336-22 3

2015-13 on Date G, before the extended due date of Date F. In addition, Taxpayer has
represented that the accounting method changes referenced by the Form 3115 were
reflected on both the required financial statements filed with the Agency and the
appropriate tax return for Subsidiary. This return was filed on Date H.

When Taxpayer, Subsidiary and Accounting Firm realized that the due date of
Subsidiary’s Form 3115 had been miscalculated, this request to obtain from the
Commissioner an extension of time under sections 301.9100-1(c) and 301.9100-3 to file
the Form 3115 late was filed.

                              RULING REQUESTED

Taxpayer requests an extension of time for filing the required original Form 3115 under
sections 301.9100-1(c) and 301.9100-3 to obtain the Commissioner’s permission to
change Subsidiary’s method of determining capitalizable mixed service costs for the tax
year ended Date B.

                               LAW AND ANALYSIS

Rev. Proc. 2015-13 provides the procedures by which a taxpayer may obtain automatic
consent to change certain accounting methods. A taxpayer complying with all the
applicable provisions of this revenue procedure has obtained the consent of the
Commissioner to change its method of accounting under IRC § 446(e) and the Income
Tax Regulations thereunder.

Section 6.03(1)(a)(i) of Rev. Proc. 2015-13 provides that a taxpayer changing an
accounting method pursuant to Rev. Proc. 2015-13 must complete and file a Form 3115
in duplicate. The original must be attached to the taxpayer’s timely filed (including any
extensions) original federal income tax return for the year of change, and a copy (with
signature) of the Form 3115 must be filed with the appropriate office of the IRS no
earlier than the first day of the year of change and no later than when the original is filed
with the federal income tax return for the year of change.

Section 301.9100-1(c) provides that the Commissioner has the discretion to grant a
reasonable extension of time under the rules set forth in sections 301.9100-2 and
301.9100-3 to make certain regulatory elections. Section 301.9100-1(b) defines a
regulatory election as an election whose due date is prescribed by regulations published
in the Federal Register, or in a revenue ruling, revenue procedure, notice, or
announcement published in the Internal Revenue Bulletin.

Section 301.9100-2 provides for automatic extensions of time for making certain
elections. Section 301.9100-3 provides for extensions of time for making elections that
do not meet the requirements of section 301.9100-2.

PLR-117336-22 4

Requests for relief under section 301.9100-3 will be granted when a taxpayer provides
evidence to establish to the satisfaction of the Commissioner (i) that the taxpayer acted
reasonably and in good faith and (ii) that granting relief will not prejudice the interest of
the government. See section 301.9100-3(a).

Section 301.9100-3(b)(1) provides that a taxpayer is deemed to have acted reasonably
and in good faith if the taxpayer:

(i) requests relief before the failure to make a regulatory election is discovered by
the IRS;
(ii) failed to make the election because of intervening events beyond the taxpayer’s
control;
(iii) failed to make the election because, after exercising reasonable diligence, the
taxpayer was unaware of the necessity of the election;
(iv) reasonably relied on written advice of the IRS; or
(v) 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.

Section 301.9100-3(b)(3) provides that a taxpayer is deemed not to have acted
reasonably and in good faith if the taxpayer:

(i) seeks to alter a return position for which an accuracy-related penalty has been or
could be imposed under IRC § 6662 at the time the taxpayer requests relief and
the new position requires or permits a regulatory election for which relief is
requested;
(ii) was informed in all material respects of the required election and related tax
consequences and chose not to file the election; or
(iii) uses hindsight in requesting relief.

Section 301.9100-3(c)(i) provides that the interests of the government are prejudiced if
granting relief would result in the taxpayer having a lower tax liability in the aggregate
for all tax years affected by the election than the taxpayer would have had if the election
had been timely made (taking into account the time value of money). The section also
provides that, if the tax consequences of more than one taxpayer are affected by the
election, the government’s interests are prejudiced if extending the time for making the
election may result in the affected taxpayers, in the aggregate, having a lower tax
liability than if the election had been timely made.

Section 301.9100-3(c)(1)(ii) provides, in part, that the interests of the government are
ordinarily prejudiced if the tax year in which the regulatory election should have been
made, or any tax years that would have been affected by the election had it been
timely made, are closed by the period of limitations on assessment under section
6501(a) before the taxpayer’s receipt of a ruling granting relief under this section.

PLR-117336-22 5

Section 301.9100-3(c)(2) imposes special rules for accounting method regulatory
elections. This section provides, in relevant part, that the interests of the Government
are deemed to be prejudiced except in unusual and compelling circumstances when the
accounting method regulatory election for which relief is requested is subject to the
procedure described in Treas. Regs. § 1.446-1(e)(3)(i) or the relief requires an
adjustment under IRC § 481(a) (or would require an adjustment under IRC § 481(a) if
the taxpayer changed to the accounting method for which relief is requested in a taxable
year subsequent to the taxable year the election should have been made).

                                 CONCLUSION

On the basis of Taxpayer’s representations, we conclude that the requirements of
sections 301.9100-1(c) and 301.9100-3 have been satisfied. Accordingly, we hereby
grant an extension of time for Taxpayer to file the original Form 3115 that should have
been attached to the tax return that was filed for the short taxable year ending on Date
B. No other revision to this return can be made. The Form 3115 must be identical to
the copy of the Form 3115 that had been filed previously with the appropriate IRS office.
This extension shall be for a period of 45 days from the date of this letter ruling.

Except as expressly set forth above, we neither express nor imply any opinion
concerning the tax consequences of the facts described above under any other
provision of the Code or regulations. Specifically, we have no opinion, either expressed
or implied, concerning whether the accounting method changes that Subsidiary has
changed are eligible to be made under the automatic consent procedures of Rev. Proc.
2015-13. Further, no opinion is expressed regarding the correctness of Subsidiary’s
proposed IRC § 263A accounting methods. Further, we have no opinion whether
Taxpayer’s acquisition of Subsidiary qualifies as a transaction described by IRC § 381.
Lastly, no opinion is expressed regarding the filing of any consolidated Federal income
tax return by Taxpayer.

The ruling contained in this letter is based upon information and representations
submitted by 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 this request for an extension of time to file the required Form 3115, all
material is subject to verification on examination.

This ruling is directed only to Taxpayer and Subsidiary. IRC § 6110(k)(3) provides that
it may not be used or cited as precedent.

PLR-117336-22 6

In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to each of Taxpayer’s authorized representatives.

                                    Sincerely,



                                    Cheryl L. Oseekey
                                    Senior Counsel, Branch 6
                                    Office of Associate Chief Counsel
                                    (Income Tax & Accounting)

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