Late section 382 value-restoration election allowed

Plain-English summary

A corporate parent and another member of its controlled group missed the deadline to elect to restore value reduced under the section 382 controlled-group rules. The election affects how the value used to calculate the section 382 limitation is allocated among component members after an ownership change. The parent sought relief before the IRS discovered the failure and showed that it had reasonably relied on a qualified tax professional who did not make or advise it to make the election. The IRS found reasonable action, good faith, and no prejudice to the government, and granted 75 days from the ruling date to file the election. Relief was conditioned on the taxpayers' aggregate liability for affected years being no lower than it would have been with a timely election, taking the time value of money into account.

Ruling snapshot

• Question: Could the parent and component member make a late election to restore value under Treas. Reg. § 1.382-8(h)?
• Outcome: Approved, with 75 days to file and an aggregate tax-liability condition
• Key authorities: IRC § 382; Treas. Reg. §§ 1.382-8, 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202345009                                             Third Party Communication: None
 Release Date: 11/10/2023                                      Date of Communication: Not Applicable
 Index Number: 9100.22-00, 382.00-00
                                                               Person To Contact:
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                                                               Refer Reply To:
                                                               CC:CORP:BO2
                                                               PLR-109905-23
                                                               Date:
                                                               August 16, 2023



Legend

Parent                                      =        ------------------------
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Electing Component Member                   =        ------------------------------------
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Date 1                                      =        -----------------------

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

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

This letter responds to a letter dated May 10, 2023, submitted on behalf of Parent,
requesting an extension of time under §301.9100-3 of the Procedure and Administration
Regulations to file an election. Parent is requesting an extension of time for Parent and
Electing Component Member to file an election to restore all of the value of Electing

PLR-109905-23                                2

Component Member to Parent under §1.382-8(h) of the Income Tax Regulations
(“Election”). The material information submitted is summarized below.

During its taxable year ended Date 1, Parent was the common parent of a consolidated
group (the “Parent Group”), a loss group under §1.1502-91(c)(1), and Parent and
Electing Component Member were component members of a controlled group of
corporations under §1.382-8(e). On Date 2 (during the taxable year ended Date 1),
Parent underwent an ownership change within the meaning of section 382(g).

Section 382(a) of the Internal Revenue Code (“Code”) provides that the amount of the
taxable income of any new loss corporation for any post-change year which may be
offset by pre-change losses shall not exceed the section 382 limitation for such year.
Under section 382(b)(1), the section 382 limitation is determined by multiplying the
value of the old loss corporation by the applicable long-term tax-exempt rate.

A special rule designed to prevent “double counting” by controlled groups is set forth in
§1.382-8. Section 1.382-8(c)(1) requires the value of the stock of each component
member of the controlled group be reduced by the value of the stock owned by that
component member in any other component member. For purposes of applying
§1.382-8, a consolidated group, loss group, or loss subgroup, is treated as a single
corporation under §1.382-8(f). Component members of a controlled group can elect
under §1.382-8(c)(2) to restore some or all of the value to the member whose value is
reduced under §1.382-8(c)(1). The election to restore value is made following the
procedures set forth in §1.382-8(h).

The Election was required to be filed with Parent’s income tax return and with Electing
Component Member’s income tax return for the taxable year that includes Date 2.
However, for various reasons, Parent and Electing Component Member failed to make
the Election in a timely manner. Parent has represented that it is not seeking 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
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. 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).

PLR-109905-23                                  3

In this case, the time for filing the Election is fixed by the regulations (i.e., §1.382-8(h)).
Therefore, the Commissioner has discretionary authority under §301.9100-3 to grant an
extension of time for Parent and Electing Component Member to file the Election,
provided Parent and Electing Component Member show they 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.

Information, affidavits, and representations submitted by Parent, Company Official, and
Tax Professionals explain the circumstances that resulted in the failure to timely file the
Election. The information establishes that Parent requested relief before the failure to
make the regulatory election was discovered by the Service and that Parent reasonably
relied on a qualified tax professional who failed to make, or advise it to make, the
Election. See §§301.9100-3(b)(1)(i) and (v).

Based on the facts and information submitted, including the affidavits submitted and the
representations that have been made, we conclude that Parent and Electing
Component Member 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 and Electing
Component Member to file the Election in accordance with §1.382-8(h).

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

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. In particular, we express no opinion with respect to whether an ownership
change occurred; whether Parent and Electing Component Member were component
members of a controlled group; or the amount of value, if any, that may be restored.
Further, we express no opinion as to the tax effects or consequences of filing the
Election late under the provisions of any other section of the Code or regulations, or as
to the tax treatment of any conditions existing at the time of, or effects resulting from,
filing the Election late that are not specifically set forth in the above ruling.

For purposes of granting relief under §301.9100-3, we relied on certain statements and
representations made by Parent, Company Official, and Tax Professionals under
penalties of perjury. However, the Director should verify all essential facts. Moreover,
notwithstanding that an extension is granted under §301.9100-3 to file the Election, any
penalties and interest that would otherwise be applicable still apply.

PLR-109905-23                                           4

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 on, and control number
(PLR-109905-23) of, the letter ruling.

In accordance with the Power of Attorney on file with this office, copies of this letter are
being sent to your authorized representatives.

                                                     Sincerely,


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

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