60-day extension to file Form 1128 to change a foreign insurer's tax year

Plain-English summary

A foreign insurance company that had elected under Section 953(d) to be taxed as a U.S. domestic corporation wanted to change its annual accounting period (its tax year end). Changing a tax year generally needs IRS approval under Section 442, and the automatic-approval procedure (Rev. Proc. 2006-45) requires filing Form 1128 by the return's due date. The company hired a firm to prepare the return and file the Form 1128, but the firm inadvertently failed to attach the form, and the mistake was found only after the extended deadline. Under the Section 301.9100-3 regulations, the IRS can grant more time for a missed regulatory election if the taxpayer acted reasonably and in good faith and relief will not prejudice the government. Because the taxpayer reasonably relied on a professional who failed to file, and asked for relief within 90 days of the return's due date, the IRS granted 60 days to file Form 1128, which will be treated as timely.

Ruling snapshot

• Question: Should a taxpayer whose preparer failed to attach Form 1128 get an extension to make a late accounting-period change?
• Outcome: approved (60-day extension granted)
• Key authorities: IRC §§ 441, 442, 953(d); Treas. Reg. §§ 301.9100-1 through 301.9100-3; Rev. Proc. 2006-45

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202438014 Third Party Communication: None
Release Date: 9/20/2024 Date of Communication: Not Applicable

Index Number: 9100.09-00
Person To Contact:
------------------------ ----------------------------
--------------- Telephone Number:
---------------------

                                                         Refer Reply To:

----------------------------------- CC:ITA:B05
------------------------------------------------ PLR-125150-23
----------------------------------------- Date:
June 18, 2024

LEGEND

Taxpayer = ------------------------------------------------------------
Firm = -----------------------
Date 1 = --------------------------
Date 2 = ----------
Date 3 = ------------------
Date 4 = ------------------
Date 5 = -----------------------
Date 6 = --------------------------
Year = -------

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

This letter responds to Taxpayer's request dated Date 1, seeking a private letter ruling
granting relief to make a late election pursuant to §§ 301.9100-1 through 301.9100-3 of
the Procedure and Administration Regulations. Specifically, Taxpayer requests an
extension of time to file Form 1128, Application to Adopt, Change, or Retain a Tax Year,
to change to a taxable year ending on Date 3, effective for Date 6.

                                       FACTS

Taxpayer is an insurance company regulated under the laws of a foreign country.
Taxpayer filed Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, on a
protective basis for all taxable years before Year, using a year end of Date 2. Taxpayer
requests to change to a taxable year ending on Date 3, consistent with its election
under section 953(d) to be a foreign insurance company treated as a domestic
corporation for U.S. Federal income tax purposes.

Taxpayer represents that it intended to change to a taxable year ending Date 3 by filing
a timely Form 1128. Taxpayer represents that if timely filed, the request to change the
taxable year end from Date 2 to Date 3 would have qualified under the automatic
procedures found in Rev. Proc. 2006-45, 2006-2 C.B. 851. Taxpayer engaged Firm to
obtain an extension of time for filing Taxpayer's Year tax return, and to prepare and file
the Year tax return, including Form 1128, by the extended due date. Firm filed an
extension for Taxpayer's tax return for Year on Date 4 and filed Taxpayer's tax return
for Year on Date 5. However, Firm inadvertently failed to attach Form 1128 to
Taxpayer's Year tax return.

The discovery of the failure to file the Form 1128 was discovered after the extended
deadline for the Year tax return.

                               LAW AND ANALYSIS

Section 441(a) of the Internal Revenue Code provides that taxable income is computed
on the basis of the taxpayer's taxable year. Section 441(b) and § 1.441-1(b)(1) of the
Income Tax Regulations provide that the term "taxable year" generally means the
taxpayer's annual accounting period, if it is a calendar or fiscal year, or, if applicable, the
taxpayer's required taxable year.

An insurance company that makes an election under section 953(d) is required to use a
calendar year end pursuant to §§ 441(a), 1.441-1(b)(2)(i)(H), and 843.

Section 442 provides that if a taxpayer changes its annual accounting period, the new
accounting period shall become the taxpayer's taxable year only if the change is
approved by the Secretary.

Section 1 of Rev. Proc. 2006-45 provides that a change in taxable year may be an
automatic accounting period change, provided the requirements of Rev. Proc. 2006-45
are met. Section 7.02(2) of Rev. Proc. 2006-45 provides that a taxpayer must file a
Form 1128 no earlier than the day following the first effective year (generally, the short
period required to make the change), and no later than the due date (including
extensions) for filing the tax return for the first effective year. Section 7.02(1)(a) of Rev.
Proc. 2006-45 provides that to change its accounting period, the taxpayer must file a
Form 1128 with the Service Center where it files its tax return. Also, the taxpayer should
attach a copy of the Form 1128 to the tax return filed for the first effective year.

Sections 301.9100-1 through 301.9100-3 provide the standards that the Commissioner
will use to determine whether to grant an extension of time to make a regulatory
election. Section 301.9100-3(a) provides that requests for extensions of time for
regulatory elections (other than automatic extensions covered in § 301.9100-2) will be
granted when the taxpayer provides evidence (including affidavits) to establish that the
taxpayer acted reasonably and in good faith and the grant of relief will not prejudice the
interests of the Government.

Rev. Proc. 2006-45 provides the time and manner for a taxpayer within its scope to
change its accounting period. Therefore, such a change is a regulatory election as
defined § 301.9100-1(b).

Under section 301.9100-3(b), a taxpayer is deemed to have acted reasonably and in
good faith if the taxpayer requests relief before the failure to make the regulatory
election is discovered by the Service, or reasonably relied on a qualified tax
professional, and the tax professional failed to make, or advise the taxpayer to make,
the election. However, a taxpayer is not considered to have reasonably relied on a
qualified tax professional if the taxpayer knew or should have known that the
professional was not competent to render advice on the regulatory election or was not
aware of all relevant facts.

In addition, 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 § 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 fully informed in all material respects of the required election and related tax
consequences but chose not to make the election; or

(iii) uses hindsight in requesting relief. If specific facts have changed since the
original deadline that make the election advantageous to a taxpayer, the Service
will not ordinarily grant relief.

Section 301.9100-3(c)(1)(i) states that the interests of the Government are prejudiced if
granting relief will result in a taxpayer having a lower tax liability in the aggregate for all
taxable years affected by the election than the taxpayer would have had if the election
had been made on a timely basis.

Section 301.9100-3(c)(1)(ii) provides that relief ordinarily will not be granted if the
taxable year in which the regulatory election should have been made, or any taxable
year that would have been affected by the election had it been timely made, is closed by
the statute of limitations on assessment before the taxpayer's receipt of the ruling
granting 9100 relief.

Section 301.9100-3(c)(3) provides that a change with respect to an accounting period
regulatory election prejudices the interests of the government if the request for relief is
made more than 90 days after the due date for filing the Form 1128.

Based on the facts and information submitted and the representations made, we
conclude that Taxpayer has acted reasonably and in good faith, and that the granting of
relief would not prejudice the interests of the Government. Taxpayer reasonably relied
on a qualified tax professional and that professional failed to make the election. Further,
Taxpayer's request for relief was filed less than 90 days after the due date of
Taxpayer's Year tax return.

Accordingly, based solely on the facts and information submitted, and the
representations made in the ruling request, Taxpayer has satisfied the requirements for
the granting of relief. Consequently, Taxpayer is granted 60 days from the date of this
letter to file Form 1128, requesting a change to a taxable year ending Date 3, and such
Form 1128 will be considered timely filed for Year.

This ruling is based upon facts and representations submitted by Taxpayer and
accompanied by a penalty of perjury statement executed by an appropriate party. This
office has not verified any of the material submitted in support of the request for a ruling.
However, as part of an examination process, the Service may verify the factual
information, representations, and other data submitted.

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, including Taxpayer's eligibility to elect under section 953(d) to be treated as a
domestic insurance company. We express no opinion regarding the tax treatment of the
instant transaction under the provisions of any other sections of the Code or regulations
that may be applicable, or regarding the tax treatment of any conditions existing at the
time of, or effects resulting from, the instant transaction. Specifically, this letter
expresses no opinion as to whether Taxpayer qualifies to make an automatic change
under Rev. Proc. 2006-45.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that
it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being faxed to your authorized representative.

A copy of this letter must be attached to any 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.

                                              Sincerely,

                                              Amy J. Pfalzgraf
                                              Branch Chief, Branch 5
                                              Office of Associate Chief Counsel
                                              (Income Tax & Accounting)

cc: ------------------
------------------