Affiliated corporations substantially complied with consolidated-return election rules

Plain-English summary

Two affiliated corporations intended to file a consolidated federal income tax return after a represented reverse acquisition. Their preparer used the subsidiary's name and employer identification number as if it were the common parent on Form 7004, Form 1120, Form 851, and related filings, even though the actual parent was identified in attached materials and both corporations joined the return. The IRS first ruled that the timely Form 7004 validly extended the group's filing deadline. It then concluded that the group substantially complied with the consolidated-return election requirements because the filing defects did not defeat the substance of the election. The requested extension under Treas. Reg. § 301.9100-3 was therefore unnecessary.

Ruling snapshot

• Question: Did the affiliated group validly elect to file a consolidated return despite identifying the wrong corporation as common parent on its filings?
• Outcome: Approved under substantial compliance, with the Form 7004 also treated as a valid extension
• Key authorities: IRC §§ 1501, 1502, 6081(b); Treas. Reg. §§ 1.1502-75, 1.6081-3(a)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202537001 Third Party Communication: None
Release Date: 9/12/2025 Date of Communication: Not Applicable
Index Number: 1502.75-00, 9100.00-00,
9100.20-00 Person To Contact:
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Refer Reply To:
CC:CORP:B5
PLR-100284-25
Date:
June 16, 2025

Legend

Parent = ------------------------------------------------------------------------------------------
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Sub = ------------------------------------------------------------------------------------------
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Date 1 = --------------------------

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

Firm = ------------------------

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

This letter responds to a letter dated December 20, 2024, 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
Sub to make an election under §1.1502-75(a)(1) of the Income Tax Regulations to file a
consolidated federal income tax return, with Parent as the common parent, for the
taxable year ending on Date 1 (the “Election”). Alternatively, Parent asserts that Parent
and Sub substantially complied with the requirements to make the Election. The
material information submitted for consideration is summarized below.

Prior to Date 2, each of Parent and Sub filed separate returns on a calendar year basis,
and neither was a member of an affiliated group within the meaning of section 1504. On
Date 2, Parent acquired all the outstanding stock of Sub in a transaction that is
represented to qualify as a reverse acquisition under §1.1502-75(d)(3) (Parent and Sub

PLR-100284-25 2

are sometimes hereinafter referred to as the “Parent-Sub Affiliated Group”). Following
the acquisition, Parent and Sub decided to file a consolidated federal income tax return
and engaged Firm for assistance with their income tax compliance obligations for their
pre- and post-acquisition years. Parent and Sub informed Firm of their intent to file a
consolidated return for the taxable year ending on Date 1.

For the taxable year ending on Date 1, Firm prepared and timely filed a Form 7004,
Application for Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns, for Parent and Sub. In the section at the top of the
Form 7004 for the name, address, and identifying number of the entity filing the form,
the name listed was “[Sub] and subsidiaries”, the identifying number was Sub’s EIN,
and the address listed was Sub’s and Parent’s shared mailing address. The box for line
3 of Part II of the Form 7004 was checked to indicate that the filer was a corporation
and was the common parent of a group that intended to file a consolidated return. A
statement attached to the Form 7004, listing the members of the affiliated group,
provided Parent’s name, Parent’s mailing address (which was shared with Sub), and
Parent’s EIN.

Prior to the extended due date requested by the foregoing Form 7004, Parent and Sub
filed a federal income tax return (a Form 1120, U.S. Corporation Income Tax Return) on
a consolidated basis for the taxable year ending on Date 1. In the section at the top of
the Form 1120 for the name, address, and identifying number of the entity filing the
form, the name listed was “[Sub] and subsidiaries”, the identifying number was Sub’s
EIN, and the address listed was Sub and Parent’s shared mailing address. In addition,
the return: (1) checked box 1a of Item A to indicate it was a consolidated return;
(2) included a Form 851, Affiliations Schedule, that listed Sub as the common parent,
Sub’s EIN, and Sub’s shared mailing address with Parent, and also listed Parent as the
subsidiary corporation, Parent’s EIN, and Parent’s shared mailing address with Sub;
(3) included two Forms 1122, Authorization and Consent of Subsidiary Corporation To
Be Included in a Consolidated Income Tax Return, one for each of Parent and Sub; and
(4) was signed by the person who served as the Chief Financial Officer of both Sub and
Parent (and as such would have signed any return filed by Parent). Because Parent and
Sub each incurred a loss for the taxable year ending on Date 1, the return reported a
loss for taxable income (and zero amount of tax owed).

If Parent and Sub substantially complied with the requirements to make the Election, an
extension of time under §301.9100-3 to make the Election would not be necessary.

Whether Parent and Sub substantially complied with the requirements to make the
Election depends in part on whether the aforementioned Form 7004 constituted a valid
extension of the due date for the Parent-Sub Affiliated Group to file a consolidated
return for the taxable year ending on Date 1. See §1.1502-75(a), infra.

Section 6012(a)(2) requires the filing of income tax returns by corporations subject to
tax under subtitle A. Section 6072(a) provides, in part, that returns under section 6012

PLR-100284-25 3

made on the basis of a calendar year must be filed on or before the 15th day of April
following the close of the calendar year.

Pursuant to section 6081(b), a corporation that satisfies certain requirements will be
allowed an automatic extension of time to file its income tax return. Section 1.6081-3(a)
provides that such requirements are: (1) an application must be submitted on Form
7004, or in any other manner prescribed by the Commissioner; (2) the application must
be filed on or before the date prescribed for the filing of the return of the corporation;
(3) the corporation (or affiliated group of corporations filing a consolidated return) must
remit the amount of the properly estimated unpaid tax liability on or before the date
prescribed for payment; and (4) the application must include a statement listing the
name and address of each member of the affiliated group if such group will file a
consolidated return. Section 1.6081-3(a) further provides that upon the timely filing of
Form 7004, the extension of time to file shall be considered as granted to the affiliated
group for the filing of its consolidated return or for the filing of each member’s separate
return.

Based on the facts, representations, and information submitted, we conclude that the
Form 7004 filed by Parent and Sub satisfied the requirements of §1.6081-3(a) and
extended the due date for the Parent-Sub Affiliated Group to file a consolidated return
for the taxable year ending on Date 1.

Section 1501 provides that an affiliated group of corporations shall have the privilege of
making a consolidated return with respect to the income tax liability imposed by Chapter
1 for the taxable year in lieu of filing separate returns. The making of a consolidated
return shall be upon the condition that all corporations which at any time during the
taxable year have been members of the affiliated group consent to all the consolidated
return regulations prescribed under section 1502 prior to the last day prescribed by law
for the filing of such return. The making of a consolidated return shall be considered as
such consent.

Section 1.1502-75(a)(1) states that a group which did not file a consolidated return for
the immediately preceding taxable year may file a consolidated return in lieu of separate
returns for the taxable year, provided that each corporation which has been a member
during any part of the taxable year for which the consolidated return is filed consents (in
the manner provided in §1.1502-75(b)) to the regulations under section 1502. If a group
wishes to exercise its privilege of filing a consolidated return, such consolidated return
must be filed not later than the last day prescribed by law (including extensions of time)
for the filing of the common parent’s return.

Section 1.1502-75(b)(1) explains that the consent of a corporation referred to in
§1.1502-75(a)(1) is made by such corporation joining in the making of the consolidated
return for such year. A corporation shall be deemed to have joined in the making of
such return for such year if it files a Form 1122 in the manner specified in §1.1502-
75(h)(2).

PLR-100284-25 4

Section 1.1502-75(h) provides the method for filing a consolidated return and forms.
Section 1.1502-75(h)(1) provides that the consolidated return shall be made on Form
1120 for the group by the common parent corporation, and the consolidated return, with
Form 851 attached, shall be filed with the district director with whom the common parent
would have filed a separate return. Section 1.1502-75(h)(2) provides that if, under
§1.1502-75(a)(1), a group wishes to file a consolidated return for a taxable year, then a
Form 1122 must be executed by each subsidiary. Section 1.1502-75(h)(3) provides that
each return or form required to be made or prepared by a corporation must be executed
by the person authorized under section 6062 to execute returns of separate
corporations.

Under the doctrine of substantial compliance, if a taxpayer has not complied with all of
the requirements of an election provision of the statute or regulations, an election may
nevertheless be deemed to have been made by the taxpayer if the requirements that
have not been satisfied do not relate to the substance or essence of the applicable
election. See Wilkinson v. Commissioner, T.C. Memo. 1993-463 (1993). Factors that
courts have used in determining whether strict compliance as opposed to substantial
compliance is required include whether the taxpayer’s failure to comply fully defeats the
purpose of the statute; whether the taxpayer attempts to benefit from hindsight by
adopting a position inconsistent with his original action or omission; whether the
Commissioner is prejudiced by the untimely election; whether the sanction imposed on
the taxpayer for the failure is excessive and out of proportion to the default; and whether
the regulation provided with detailed specificity the manner in which an election was to
be made. American Air Filter Co. v. Commissioner, 81 T.C. 709, 719-720 (1983).

Based on the facts, representations, and information submitted, we conclude that the
Parent-Sub Affiliated Group substantially complied with the requirements to elect to file
a consolidated return for the taxable year ending on Date 1.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. Except as provided herein, no opinion is expressed or implied
concerning the federal income tax consequences of the transaction referenced in this
letter.

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.

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

PLR-100284-25 5

                                           Sincerely,



                                           _______________________________
                                           Thomas I. Russell
                                           Senior Technician Reviewer, Branch 4
                                           Office of Associate Chief Counsel (Corporate)

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