Extension granted to elect out of bankruptcy ownership-change relief

Plain-English summary

A parent corporation and its consolidated group underwent an ownership change while the parent and two subsidiaries were under bankruptcy court jurisdiction. The group missed the deadline to elect out of the special section 382(l)(5) rules that can apply to ownership changes in a title 11 case. The IRS found that the parent acted reasonably and in good faith because it relied on a qualified tax professional who failed to make or advise it to make the election. It granted the parent 75 days from the ruling date to file the election. The relief was conditioned on the group's aggregate tax liability not being lower than it would have been if the election had been timely made.

Ruling snapshot

• Question: Could the parent receive more time to elect out of section 382(l)(5) for a bankruptcy-related ownership change?
• Outcome: Approved, with 75 days from the ruling date to file the election
• Key authorities: IRC § 382(l)(5)(G); Treas. Reg. §§ 1.382-9(i), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                        Department of the Treasury
                                                                 Washington, DC 20224

 Number: 202342007                                               Third Party Communication: None
 Release Date: 10/20/2023                                        Date of Communication: Not Applicable
 Index Number: 9100.22-00, 382.12-08,
               382.12-13                                         Person To Contact:
                                                                 -----------------------, ID No. -----------------
 ----------------------------------------------                  Telephone Number:
 ----------------------------                                    --------------------
 ----------------------------                                    Refer Reply To:
 ----------------------------                                    CC:CORP:04
                                                                 PLR-103871-23
                                                                 Date:
                                                                 July 25, 2023




Legend

Parent                     =        --------------------------------------------------------------------
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Subsidiary 1               =        ---------------------------------------------------------------------------------
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Subsidiary 2               =        ---------------------------------------------------------------------------------
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Date 1                     =        --------------------------

Date 2                     =        -------------------------

Company Official           =        -------------------------------------------------
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Tax Professionals          =        -------------------------------
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PLR-103871-23                                 2

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

This letter responds to a letter dated February 3, 2023, submitted on behalf of Parent,
the common parent of a consolidated group, requesting an extension of time under
§301.9100-3 of the Procedure and Administration regulations to file an election under
section 382(l)(5)(G) and §1.382-9(i) 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 for consideration is summarized below.

For the taxable year ending Date 1, Parent and its subsidiaries, which included
Subsidiary 1 and Subsidiary 2, elected to file a consolidated return with Parent as the
common parent (the “Parent Group”). Parent represented that Parent Group underwent
an ownership change within the meaning of section 382(g) and §1.1502-92(b) on Date
2, and that Parent Group was a loss group (as defined in §1.1502-91(c)(1)).
Immediately prior to Date 2, each of Parent, Subsidiary 1, and Subsidiary 2 were under
the jurisdiction of a court in a title 11 case. Parent has represented that it is not seeking
to alter a return position for which an accuracy-related penalty has been or could be
imposed under section 6662.

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 Parent Group's tax return for the taxable year ending Date 1, 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.

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
PLR-103871-23                                  3

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 Parent to file the Election, provided Parent 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 Parent, 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 filed before
the failure to make the Election was discovered by the Internal Revenue Service, and
that Parent reasonably relied on a qualified tax professional who failed to make, or
advise Parent to make, the Election. See §301.9100-3(b)(1)(i) and (v).

Based on the facts and information submitted, including the representations made, we
conclude that Parent 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 Parent to file the
Election.

The above extension of time is conditioned on the Parent 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 Parent Group's tax liability for the
years involved. A determination thereof will be made by the applicable Director’s office
upon audit of the federal income tax returns involved.

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 on, and control number
(PLR-103871-23) of, this letter ruling.

For the purposes of granting relief under §301.9100-3, we relied on certain statements
and representations made by Parent, Company Official, and Tax Professionals.
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 taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.
PLR-103871-23                                         4

Pursuant to 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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