9100 relief for a late Section 59(e) election to amortize R&D costs over 10 years

Plain-English summary

A consolidated group of corporations wanted to spread the deduction for its
research and experimental (R&D) costs over 10 years rather than take them all at
once, an option Code § 59(e) allows if the taxpayer attaches an election
statement to a timely filed return. The group thought it had filed a Form 7004
to extend its return deadline and filed by the extended date, but it later
discovered the Form 7004 was never actually submitted. That made the return, and
the § 59(e) election attached to it, late. The parent asked the IRS for an
extension of time under the "9100 relief" regulations (Treas. Reg. § 301.9100-3)
to make the election. The IRS granted a 120-day extension, finding the group
acted reasonably and in good faith and that relief would not prejudice the
government. This matters because a missed extension form can quietly blow an
election deadline, and 9100 relief is the mechanism to cure it when the lapse was
innocent.

Ruling snapshot

• Question: May a consolidated group that missed the deadline for a § 59(e) election (because its return-extension form was never filed) get an extension of time to make the election?
• Outcome: approved (120-day extension granted)
• Key authorities: IRC § 59(e); IRC § 174(a); Treas. Reg. §§ 1.59-1(b)(1), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                     Department of the Treasury
                                                              Washington, DC 20224

 Number: 202319002                                            Third Party Communication: None
 Release Date: 5/12/2023                                      Date of Communication: Not Applicable
 Index Number: 9100.02-03
                                                              Person To Contact:
 ------------------                                           --------------------, ID No. -----------------
 -------------------                                          Telephone Number:
 ------------------------------                               --------------------
 ----------------------------                                 Refer Reply To:
                                                              CC:PSI:B06
                                                              PLR-112916-22
                                                              Date:
                                                              February 15, 2023
 Re: Request for extension of time under
 §§ 301.9100-1 and 301.9100-3 of the
 Procedure and Administration Regulations to
 file an election pursuant to § 59(e) of the
 Internal Revenue Code




LEGEND

P                         =        ------------------------------
                                  -------------------------

S                         =       ---------------
                                  -------------------------

a                         =       -----------------

Tax Year                  =       -----------------------------------------------------


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

       This letter responds to a letter dated June 29, 2022, and subsequent
correspondence submitted by P on behalf of S, requesting an extension of time under
§§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations to
make an election under § 59(e) of the Internal Revenue Code (Code) and § 1.59-
1(b)(1) of the Income Tax Regulations to deduct ratably over a 10-year period research
and experimental (R&E) expenditures incurred in Tax Year under § 174(a) .
PLR-112916-22                                 2

      This letter 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 P.

                                          FACTS

       P represents that the facts are as follows:

        P is the common parent of an affiliated group of corporations that
includes S (hereinafter P and S will be collectively referred to as Taxpayer), and that
files a consolidated federal income tax return on a calendar year basis using the accrual
method of accounting.

        Taxpayer intended to make an election under § 59(e) and § 1.59-1(b)(1) to
deduct ratably over a 10-year period a portion of its R&E expenditures. On its
consolidated federal income tax return for Tax Year, Taxpayer capitalized and
amortized its R&E expenditures in the amount of $a incurred during that year under
§ 59(e). An election statement, as required by § 59(e) and § 1.59-1(b)(1), was attached
to Taxpayer’s return for Tax Year when filed. However, the election statement did not
identify that P was making the election on behalf of S.

      Taxpayer had prepared a Form 7004, Application for Automatic Extension of
Time To File Certain Business Income Tax, Information, and Other Returns, to request
an automatic 6-month extension to file its consolidated federal income tax return for Tax
Year. The Form 7004 was saved in Taxpayer’s system, and Taxpayer believed the
Form 7004 had been timely filed. Based on this belief, Taxpayer filed its return by the
extended due date for Tax Year.

       Taxpayer later discovered that it had not filed the Form 7004 to extend the
consolidated federal return for Tax Year. Taxpayer realized that the return for Tax Year
had not been timely filed, and that, therefore, the election under § 59(e) was also not
timely filed.

      Taxpayer has made representations explaining why the Form 7004, and
consequently, the consolidated return for Tax Year and the election statement under
§ 59(e) and § 1.59-1(b)(1) were not timely filed. Taxpayer further represents that, in
requesting an extension of time to make a § 59(e) election for Tax Year, it has acted
reasonably and in good faith and, further, there is no prejudice to the interests of the
government.

                                 RULING REQUESTED

       Taxpayer requests an extension of time under §§ 301.9100-1 and 301.9100-3 to
make an election under § 59(e) to capitalize and deduct ratably over a 10-year period
certain R&E expenditures incurred during Tax Year.
PLR-112916-22                                3

                                  LAW AND ANALYSIS

       Section 59(e)(1) allows a taxpayer, in general, to deduct ratably over the 10-year
period any qualified expenditure to which an election under § 59(e) applies, beginning
with the taxable year in which such expenditure was made.

       Section 59(e)(2)(B) includes in the definition of "qualified expenditure" any
amount which, but for an election under § 59(e), would have been allowable as a
deduction (determined without regard to § 291) for the taxable year in which paid or
incurred under § 174(a) (relating to R&E expenditures).

      Section 59(e)(3) specifically prohibits the deduction of the qualified expenditures
under any other section of the Code if the option under § 59(e) is elected.

      Section 59(e)(4)(A) provides that an election may be made under § 59(e)(1) with
respect to any portion of any qualified expenditure.

       Section 59(e)(4)(B) provides that any election under § 59(e) may be revoked only
with the consent of the Secretary.

        Section 1.59-1(b)(1) provides that an election under § 59(e) shall only be made
by attaching a statement to the taxpayer's income tax return (or amended return) for the
taxable year in which the amortization of the qualified expenditures subject to the §
59(e) election begins. The statement must be filed no later than the date prescribed by
law for filing the taxpayer's original income tax return (including any extensions of time)
for the taxable year in which the amortization of the qualified expenditures subject to the
§ 59(e) election begins. Additionally, the statement must include the taxpayer's name,
address, and taxpayer identification number, and the type and amount of qualified
expenditures identified in § 59(e)(2) that the taxpayer elects to deduct ratably over the
applicable period described in § 59(e)(1).

        Under § 301.9100-1(c), 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 Code except
subtitles E, G, H, and I.

       Section 301.9100-1(b) provides the term "regulatory election" includes an
election the due date of which is prescribed by a regulation published in the Federal
Register.

      Sections 301.9100-1 through 301.9100-3 provide the standards used to
determine whether to grant an extension of time to make a regulatory election. Section
301.9100-1(a).
PLR-112916-22                                 4

       Section 301.9100-2 allows 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 § 301.9100-2.

       The Commissioner will grant requests for relief under § 301.9100-3 when the
taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) 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. Section 301.9100-3(a).

                                      CONCLUSION

       Based solely on the information submitted and the representations made, we
conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
Accordingly, the Commissioner grants Taxpayer an extension of time of 120 days from
the date of this letter to make an election under § 59(e) and § 1.59-1(b)(1) to deduct
ratably over a 10-year period its R&E expenditures incurred for Tax Year. The § 59(e)
election must comply with the manner-of-election requirements of § 1.59-1(b)(1).

         In making the election for Tax Year, Taxpayer must attach a copy of this letter
ruling to its amended consolidated federal income tax return. Alternatively, if Taxpayer
files its amended consolidated federal income tax return electronically, it may satisfy this
requirement by attaching a statement to its amended return that provides the date and
control number of the letter ruling.

       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 the request for a ruling, it is subject to verification on examination. Except as
specifically set forth above, we express no opinion concerning the federal tax
consequences of the facts described above under any other provision of the Code and
the regulations thereunder. Specifically, we express or imply no opinion concerning
whether Taxpayer satisfies the requirements of §§ 59(e) or 174(a).

       This ruling is directed only to the taxpayer who requested 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, we are sending a
copy of this letter to your authorized representative.

                                       Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs and Special Industries)
PLR-112916-22                                             5


                                                 Jennifer Records
                                       By:       _______________________________
                                                 Jennifer A. Records
                                                 Senior Technician Reviewer, Branch 6
                                                 Office of the Associate Chief Counsel
                                                 (Passthroughs and Special Industries)
Enclosure
Copy for § 6110 purposes



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