office_of_chief_counsel internal_revenue_service memorandum number release date cc corp b04 posts-105004-09 uilc date date third party communication none date of communication not applicable to ----------------------- revenue_agent large mid-size business from william d alexander associate chief_counsel corporate subject reduction of member’s net_operating_loss under sec_108 issue where a member of a consolidated_group has excluded discharge_of_indebtedness income during a consolidated_return_year preceding the adoption of sec_1_1502-28t whether the net_operating_loss subject_to reduction under sec_108 is the entire cnol of the group or an allocated portion of that cnol conclusion where a member of a consolidated_group has excluded discharge_of_indebtedness income during a consolidated_return_year preceding the adoption of sec_1_1502-28t the net_operating_loss subject_to reduction under sec_108 is the entire cnol of the group law and analysis attribute reduction in general sec_61 generally requires a taxpayer to include in gross_income any income from the discharge_of_indebtedness cod sec_108 permits a taxpayer to exclude cod income from gross_income if the discharge occurs in a title_11_case under sec_108 the amount of cod income excluded from gross_income under sec_108 must be applied to reduce the tax_attributes of the taxpayer posts-105004-09 as provided in sec_108 sec_108 lists the tax_attributes that are subject_to reduction and the order in which those attributes must be reduced absent an election under sec_108 the taxpayer must first reduce any net_operating_loss nol for the taxable_year of the discharge and any nol_carryover to such taxable_year sec_108 irs position the service acknowledges that the reference to the taxpayer in sec_108 refers to the consolidated_group member with excluded cod income debtor-member rather than the entire group the sole issue in this case is the determination of the debtor-member’s nol which is the item subject_to reduction under sec_108 under sec_1_1502-80 the code or other law applies to the group to the extent the regulations do not exclude its application ordinarily a corporation that is not a member of a consolidated_group computes its nol on a stand-alone basis therefore where a corporation with excluded cod is not a member of a consolidated_group the nol to be reduced is clear however the consolidated_return_regulations change the computation of the nol of a member of a consolidated_group neither the code nor the consolidated_return_regulations provide a generally applicable definition of a separate nol for a member of a consolidated_group united dominion indus inc v 532_us_822 instead a member’s losses and deductions arising during a consolidated_return_year are included in the computation of the entire group’s consolidated_taxable_income cti or consolidated_net_operating_loss cnol for that year see sec_1_1502-11 and sec_1_1502-21 no specific_portion of the cnol is allocated to any particular member of the group for its use during consolidated_return years rather each member has the ability to offset its income with nol generated by the operations of all members of the group during a consolidated_return_year see sec_1_1502-11 however sec_1 b specifically provides that if a member leaves the consolidated_group a portion of the remaining cnol is allocated and apportioned to that member for its use in later separate_return years sec_1_1502-21 also applies to apportion the cnol to various members for purposes of carrying back loss to pre-consolidation separate_return years in either case in the years at issue the regulation authorized allocation only for the purpose of carrying losses forward and backward into separate_return years sec_1_1502-21 provides if any cnol that is attributable to a member may be carried to a separate_return_year of the member the amount of the cnol that is attributable to the member is apportioned to the member apportioned loss and carried to the separate_return_year posts-105004-09 during the period at issue certain other consolidated provisions required the application of the principles of sec_1_1502-21 to apportion the cnol to various members for particular purposes however there was no such apportionment rule for purposes of implementing attribute reduction under sec_108 the status of a cnol as a group attribute that is generally not apportioned among members was central to the supreme court’s analysis in united dominion in that case the supreme court considered the proper method for computing a consolidated group’s product_liability_loss pll eligible for the ten-year carryback period under former sec_172 for purposes of that provision a pll was defined as the lesser_of a the taxpayer’s nol for the year or b its allowable deductions attributable to product_liability expenses ples sec_172 of the code in each consolidated_return_year at issue in united dominion the consolidated_group reported a cnol that exceeded its members’ aggregate ples in addition certain members with ples had positive separate_taxable_income rather than negative for each taxable_year thus the proper computation of the group’s pll eligible for ten- year carryback depended upon whether the comparison of ples to nol for each taxable_year was made on a consolidated basis ie by comparing the cnol to the group’s aggregate ples or on a separate-entity basis ie by comparing a separate loss of each member to that member’s ples and then aggregating the resulting amounts in considering this issue the supreme court closely analyzed the sections of the consolidated_return_regulations that govern the computation of the group’s cti and cnol the supreme court summarized the pertinent rules as follows under sec_1_1502-11 and sec_1_1502-21 an affiliated group’s consolidated_taxable_income cti or alternatively its consolidated_net_operating_loss cnol is determined by taking into account several items the first is the separate_taxable_income sti of each group member a member’s sti whether positive or negative is computed as the member were a separate corporation ie by netting income and expenses but subject_to several important modifications sec_1_1502-12 these modifications require a group member calculating its sti to disregard among other items its capital_gains_and_losses charitable-contribution deductions and dividends-received deductions ibid these excluded items are accounted for on a consolidated basis that is they are though see eg sec_1_1502-42 and sec_1_1502-47 this provision was contained in the internal_revenue_code of and was the predecessor to sec_172 of the current code posts-105004-09 for a charitable_contribution can offset combined at the level of the group filing the single return where deductions otherwise attributable to one member say income received by another from a capital_gain for example sec_1_1502-11 - f to a consolidated group’s cti or cnol therefore is the sum of each member’s sti plus or minus a handful of items considered on a consolidated basis united dominion u s pincite the government argued that the group’s pll should be determined on a separate-member basis by comparing each member’s separate net_loss to that member’s ples and then aggregating the members’ plls the government further argued that a member’s negative sti under sec_1_1502-12 was analogous to a separate nol and thus a member’s pll would equal its ples limited to the amount of its negative sti as a result a member with positive sti could have no pll the supreme court rejected negative sti as a measure of separate nol for purposes of determining a member’s pll because the calculation of sti excludes several items that a consolidated_group takes into account only at the consolidated level ie capital_gains_and_losses charitable-contribution deductions and dividends- received deductions id pincite citing sec_1_1502-12 to n furthermore the court examined the rule_of sec_1_1502-79 currently designated as sec_1_1502-79a and substantively identical to the sec_1_1502-21 regulation herein at issue which allocates portions of the cnol to members for the purpose of carrying losses to separate_return years the court concluded that this rule applies only for the specific purpose of establishing carryover and carryback amounts of nol because no carrybacks to separate_return years were at issue the court concluded that sec_1_1502-79 did not apply to provide a measure of separate nol for purposes of computing the group’s pll on a separate-entity basis id pincite in addition because there existed no consolidated_return rule that otherwise allocated and apportioned the cnol to specific members of the group with regard to the matter at hand the court concluded that the cnol could not be unbaked into separate nols for particular members the supreme court emphasized that the code and regulations governing affiliated groups of corporations filing consolidated_returns provide only one definition of nol ‘consolidated’ nol id pincite the supreme court further held that no definition of separate nol exists for a member of a consolidated_group id specifically the supreme court stated id stating s ection a unbakes the cake for only one reason and that reason has no application here posts-105004-09 indeed the fact that treasury regulations do provide a measure of separate nol in a different context for an affiliated_corporation as to any year in which it filed a separate_return underscores the absence of such a measure for an affiliated_corporation filing as a group member given this apparently exclusive definition of nol as cnol in the instance of affiliated entities with a consolidated_return we think it is fair to say as united dominion says in its brief that the concept of separate nol simply does not exist id pincite emphasis added in the current case the government has applied sec_108 and sec_1 b consistently with the supreme court’s interpretation of the precursor to sec_1 b in united dominion neither the code nor the consolidated_return_regulations allocate and apportion the cnol to a group member for purposes of reducing attributes under sec_108 thus for periods before the adoption of sec_1_1502-28t application of sec_108 and the consolidated_return_regulations require that the entire cnol of the consolidated_group is treated as the nol of the member with excluded cod income taxpayer’s position the taxpayer argues that sec_108 requires the reduction of only the portion of the cnol that would be attributable to the debtor-member under an application of the allocation rules of sec_1_1502-21 in support of its position the taxpayer criticizes the government’s reliance on the supreme court’s decision in united dominion the taxpayer argues that because for the years at issue there were no consolidated_return_regulations that specifically addressed the application of sec_108 within a consolidated_group there are no rules in place to govern the issue of identifying the nol of each debtor-member of the group therefore the taxpayer argues that it may apportion the cnol to the debtor-members for purposes of reduction under sec_108 united dominion the taxpayer criticizes the service’s reliance on the supreme court’s opinion in united dominion for its position that sec_108 requires reduction of the entire cnol the taxpayer alleges that the service misapplies united dominion and overstates its impact on the issue at hand there is no support for the view that another court would hold for the government on the basis of united dominion when the government in our case has similarly failed to change its regulations following the enactment of sec_108 on the contrary it would be consistent with the posts-105004-09 principle or rationale of united dominion for a court to penalize the government for failing to address this issue through regulations by similarly ruling in the taxpayer’s favor taxpayer’s submission pincite emphasis in original the taxpayer asserts that the supreme court in united dominion held for the taxpayer on the basis that the government had not modified its consolidated_return_regulations to determine a ‘separate member’ nol for product_liability purposes under sec_172 id the taxpayer also asserts that the issue addressed by the court in united dominion was limited to the computation of the ten-year carryback of pll under a prior version of sec_172 and that that provision is entirely unrelated to sec_108 the taxpayer evidently reads united dominion not as a case about whether outside the separate_return context consolidated_group members have nols separate from the cnol of the group but as a case in which the supreme court punished the government for not timely conforming its consolidated_return_regulations following the enactment of the bankruptcy_tax_act_of_1980 in other words the taxpayer essentially concedes that in the present case in deference to united dominion a court might rule that sec_108 mandates a reduction in the group's cnol but only if the litigating positions were reversed and the taxpayer that was the one seeking that result the taxpayer’s position is baseless first the supreme court held against the government in united dominion because the government attempted to argue against its regulations that were in place during the period at issue the government attempted to extend the application of the cnol allocation rules beyond their stated purpose second as discussed below the analysis in united dominion is not limited to the pll context rather the court analyzed the consolidated_net_operating_loss regulations in a general and broadly applicable manner its decision regarding the meaning of those regulations is clearly applicable in this case united dominion concerned the application of the pll rules within a consolidated_group a central and necessary legal determination in the case was whether separate nols existed for individual members of the group where there was no specific rule providing for a separate-member computation although the ultimate issue in united dominion was the method for calculating a consolidated group’s pll the critical reasoning in the opinion concerns whether the consolidated_return_regulations provide a the supreme court’s holding in united dominion was based on the text of the consolidated_return_regulations in effect during the years in issue and was not based on the government’s failure to amend these regulations following congress’ enactment of the pll rules although the court does state that t he treasury’s relaxed approach to amending its regulations to track code changes is well documented united dominion pincite there is no indication in the opinion that its decision was intended to penalize the government or that in future cases the consolidated_return_regulations should be interpreted in a way that favors taxpayers over the government posts-105004-09 measure of separate-member nol in any context other than the separate_return context virtually the entire analysis by the court in united dominion focuses on this issue as a result of this analysis the supreme court reversed the decision of the court_of_appeals for the fourth circuit which had used sec_1_1502-21 to apportion the cnol in the pll context according to the supreme court the fourth circuit had applied concepts addressing separate_return years to a determination for a consolidated_return_year without any statutory or regulatory basis for doing so id pincite although the current case involves the application of sec_108 rather than sec_172 the central issue is the same as in united dominion whether the consolidated_return_regulations provide a measure of separate-member nol as discussed above in united dominion the supreme court concluded that a group member does not have a separate nol for a consolidated_return_year except where a specific consolidated_return regulation allocates and apportions a part of the cnol to that member in this case the taxpayer appears to concede that no such allocation rule exists thus the cnol must be the pertinent nol available for reduction under sec_108 additional case law the taxpayer cites two cases as limiting the holding of united dominion to the sec_172 arena however neither of those cases so limits united dominion further neither case addresses the core issue of whether a cnol can be apportioned among members of a group absent a rule in the consolidated_return_regulations allowing such apportionment the taxpayer cites 68_fedclaims_561 a contract case concerning the damages resulting from the government’s breach of an acquisition agreement under which a consolidated_group acquired three failing thrifts the damages included the value of lost income_tax deductions caused by the government’s enactment of legislation that eliminated the tax benefits associated with the thrift acquisition agreement after an examination of the group’s tax returns for the years at issue the taxpayer and the irs entered into a closing_agreement which included an agreed-upon amount for the taxpayer’s bad_debt deductions for such taxable years following the execution of the closing_agreement the government disagreed with the plaintiff taxpayer’s computation of lost deductions the government’s argument was based on the assertion that the group’s consolidated tax_attributes should have been reduced under sec_108 the government’s expert relied on united dominion and because pll was limited to the amount of the taxpayer’s nol the supreme court stated t he first step in applying the definition and methodology of pll to a taxpayer filing a consolidated_return thus requires the calculation of nol united dominion u s pincite posts-105004-09 testified that the law for the years at issue and required reduction of the cnol the court held for the taxpayer in temple-inland however the ruling had nothing to do with the application of sec_108 to a member of a consolidated_group rather the court held for the taxpayer on the basis of the finality of the closing_agreement executed by the irs and the taxpayer that closing_agreement specifically provided that attribute reduction would be limited to the tax_attributes that were generated by the insolvent debtor-members the court stated we deem it unnecessary to determine whether the regulation merely discovered the correct state of the law or in fact created new law the taxpayer is entitled to base its present claim on the state of its closed tax returns it is entitled at this point to a heavy presumption of correctness it is entitled to present its claim on the assumption that the closing_agreement is final and that another executive agency in this case the department of justice will not attempt to unscramble it id pincite emphasis added the taxpayer also cites brunswick corp v united_states no 07c3792 u s dist lexis n d ill date in an attempt to support its argument that united dominion should be limited to sec_172 cases the taxpayer in brunswick cited united dominion in a misguided attempt to support its argument that depreciation_deductions to be claimed on a consolidated_return should be computed on a consolidated_group basis rather than a separate-entity basis the court rejected the taxpayer’s reliance on united dominion as overbroad and stated the court disagrees with the suggestion that this holding in united dominion means that the policies underlying the brunswick the parent of a consolidated_group and a calendar-year taxpayer purchased in december of all of the stock of two separate corporate groups brunswick made elections under sec_338 for each stock purchase the issue was whether the short taxable_year rule applied to determine the acquired subsidiaries’ depreciation_deductions for the portion of the taxable_year during which they were members of brunswick’s consolidated_group the short taxable_year rule limited a taxpayer’s annual depreciation deduction in a taxable_year that was less than months to a pro_rata portion of such deduction based on the number of months in such taxable_year because brunswick acquired the stock in december application of the short taxable_year rule substantially reduced the amount of the subsidiaries’ depreciation_deductions otherwise allowable brunswick contended that the depreciation_deductions should be computed based on brunswick’s full taxable_year and thus the short taxable_year rule did not apply because it did not have a short taxable_year posts-105004-09 consolidated_return system requires sic that all tax items be considered at the subsidiary level brunswick u s dist lexis at the consolidated_group level not as part of its rejection of the taxpayer’s argument in brunswick the court emphasized that the supreme court in united dominion resolved the issue of whether nols associated with pll were determined at the consolidated or subsidiary level by examining the definition of cnol in the code and regulations id the court further noted that in doing so the supreme court considered sec_1_1502-11 and sec_1_1502-21 and held that net operating losses had to be accounted for at the consolidated_return level as opposed to the subsidiary level because the only definition of net_operating_loss in the code and regulations was for a consolidated_net_operating_loss id at emphasis added the court next stated that depreciation united dominion thus does not stand for the blanket proposition the consolidated_return level instead it teaches that courts considering whether to look at the consolidated_return level or the subsidiary level should look to the applicable irc provisions and regulations id at emphasis added is determined at accordingly the court in brunswick considered the applicable consolidated_return_regulations in deciding whether the acquired subsidiaries’ depreciation_deductions should be computed at the consolidated or subsidiary level although there are no consolidated_return_regulations that expressly direct the calculation of depreciation_deductions the court found that the general computations provided for in sec_1_1502-12 and sec_1_1502-11 control the analysis under those general rules individual taxable_income items are computed at the member level rather than on a consolidated level subject_to stated exceptions the court’s analysis in brunswick supports the government’s interpretation of sec_108 in the current case the reasoning of the brunswick court was controlled by the general consolidated_return_regulations with regard to the computation of taxable_income in the absence of a specific rule addressing the calculation of depreciation within a consolidated_group under the more general regulations individual taxable_income items are accounted for at the separate-entity level subject_to stated exceptions similarly in the current case for the years at issue no statute or regulation specifically addressed the application of sec_108 within a consolidated_group however the more general consolidated_return_regulations provide controlling authority under those consolidated_return_regulations the only nol constructed and in existence within a consolidated_group is the cnol subject_to stated exceptions accordingly due to the absence of an applicable exception the nol for purposes of reduction under sec_108 must be the cnol posts-105004-09 taxpayer’s statutory construction argument the taxpayer states that t he nopa’s position cannot be supported by the statute the legislative_history or the rules of statutory construction taxpayer’s submission pincite in addition the taxpayer argues that the cnol cannot be considered an attribute of each member of a consolidated_group taxpayer’s submission pincite although the taxpayer argues that the government’s position is unsupportable the taxpayer does not support in any way its failure to take into account the rules provided in sec_1_1502-11 and sec_1_1502-12 which govern the computation of the cnol further the taxpayer fails to support on legal grounds its use of sec_1_1502-21 to allocate the cnol - an action that the supreme court specifically prohibited in united dominion the taxpayer makes no attempt to refute the logic of the supreme court’s directive in united dominion as to the operation and meaning of these regulations rather the taxpayer baldly claims that the supreme court’s pronouncements regarding the status of the cnol within a consolidated_group do not apply taxpayer appears to assert that the text of sec_108 is clear on its face and requires that only an allocated portion of the cnol be reduced taxpayer’s submission pincite in support of its claim the taxpayer cites the 286_f3d_324 6th cir for the rule_of statutory construction that requires a statute to be interpreted by assigning an ordinary and natural meaning to an undefined term this citation of the limited appears to actually support a point not at issue - whether only the nol of the debtor-member is exposed to attribute reduction under sec_108 in any case the taxpayer’s reliance on the limited is flawed in the limited the term at issue was bank which was not specifically defined in the provision at issue however in this case that ordinary meaning rule_of statutory construction does not apply because the term at issue nol is expressly treated in the consolidated_return_regulations as the supreme court held in united dominion under the consolidated_return_regulations the cnol is not apportioned and allocated to a member except as specifically provided by the regulations therefore absent such a special_allocation rule the only nol is the cnol the taxpayer further states that it is completely puzzling how the logic of the nopa could support an assertion that a particular member may exclude cod income under sec_108 but other members of the consolidated_group must have their further the taxpayer does not contend that the consolidated_return_regulations applicable in this case are different in any material way from those at issue in united dominion the taxpayer's justification for disregarding the holding of united dominion is that the opinion cannot be used to change the words of a statute or to otherwise put a gloss on what congress intended years earlier when it enacted sec_108 however putting a gloss on the intentions of congress and construing its enactments are among the supreme court's main jobs and this fact does not depend on how clear a litigant believes the statute in question happens to be posts-105004-09 share of the cnol reduced under sec_108 taxpayer’s submission pincite in its apparent amazement with the government’s position the taxpayer fails to consider that the consolidated_return rules generally provide for the sharing of tax_attributes by members of a consolidated groupdollar_figure under the regulations the cnol is a tax attribute that is fully available to each and every member of a consolidated_group the portion of the cnol that might be economically traced to a particular member’s operations is not made available specifically or exclusively to that memberdollar_figure rather each member can use the cnol to offset its income and reduce its several_liability for the tax of the entire group under sec_1 because the group’s income or loss computation is applied on a consolidated basis any income of the group - including cod income of any member - could be offset by application of the entire cnol in fact there is no question that non-excluded cod income of any member of the group could be offset by the entire cnol not only by the portion of the cnol that is allocable to the member that incurred the cod thus the offset of the cnol against excluded cod income should be hardly a novel ideadollar_figure this sharing of attributes is widely regarded as the most attractive feature of the consolidated_return_regulations see dubroff et al federal income_taxation of corporations filing consolidated_returns dollar_figure stating t he ability to offset one member's losses against another member's income may be the single most important feature of filing on a consolidated basis sec_1_1502-12 provides that a member s separate_taxable_income sti whether positive or negative is computed as though the member were determining its taxable_income under the code as a corporation filing a separate_return subject_to several modifications in particular sti does not include the items including nol deductions that are taken into account on a consolidated basis under sec_1 a see sec_1_1502-12 and j to n under sec_1_1502-11 a consolidated group’s cti or cnol for a consolidated_return_year is determined by taking into account each member’s sti or loss plus a number of items that are determined on a consolidated basis including any cnol deduction in other words the losses that constitute the cnol for a consolidated_return_year are carried to other consolidated_return years only on a consolidated basis and deducted by the group as part of the cnol deduction under sec_1_1502-11 they are not made available specifically or exclusively to the member that generated them sec_1_1502-6 provides that the common parent and each subsidiary that was a member of the consolidated_group during any part of a consolidated_return_year are severally liable for the tax of the entire group for such year see deborah l paul united dominion implications for attribute reduction tax note sec_262 date concluding in light of united dominion that the entire cnol is the nol of the debtor-member lee sheppard consolidated_returns the courts and insolvent subsidiaries tnt date reporting discussions of the nysba in which panelists concluded that the entire cnol should be the nol of the debtor-member in a related argument the taxpayer argues the nopa fails to address the determinative question of how the cnol should be considered a tax attribute of the taxpayer within the literal language of sec_108 admittedly the cnol is the only nol for the consolidated_group but the nopa’s position would require that the entire cnol of the consolidated_group be treated in full as a tax attribute of each of the separate posts-105004-09 in making its statutory regulatory construction argument the taxpayer points to certain examples in consolidated_return_regulations issued in under sec_1_1502-19 and sec_1_1502-32 the taxpayer argues that the language used in those examples strongly suggests that only an allocated share of the cnol rather than the entire cnol is reduced under sec_108 needless to say no consolidated_return_regulations nor any other official guidance issued by the service prior to the united dominion opinion specifically addresses sec_108 attribute reduction resulting from the exclusion of income by a member of a consolidated_group further sec_1_1502-11 sec_1_1502-12 and sec_1_1502-21 are the regulatory provisions that control the construction definition and allocation of a cnol examples cannot change the meaning of a rule contained in regulatory text this is particularly true where the examples at issue were promulgated under a regulatory section that is merely ancillary to the rule at issue legislative_history of sec_108 the taxpayer has accused the government of placing undue emphasis on the legislative_history of sec_108 taxpayer’s submission pincite at the same time the taxpayer claims that the government’s analysis makes no attempt to discern whether congress in intended to require a reduction of the debtor-member’s group cnol id pincite as demonstrated above the government’s rationale and conclusion are based on the interaction of sec_108 and the consolidated_return_regulations as they existed at the time of the excluded cod income that being said the required application of those regulations to a member of a consolidated_group does indeed comport well with the stated intent behind the enactment of sec_108 the legislative_history of sec_108 does not include any specific indication of legislative intent with regard to application to consolidated groups therefore the best_method of determining the intent of congress is to examine the general purpose of the provision in question members of the group there is nothing in the code provisions or treasury regulations-nor for that matter anything that can be taken from the united dominion sic -that provides that the consolidated group’s cnol is also a tax attribute of each individual member of the group taxpayer’s submission pincite as discussed above each member has access to the full amount of the group’s nol and may offset its income items against that cnol therefore the interpretation of the consolidated_return_regulations most in line with their ordinary operation supports treating the full amount of the cnol as an attribute of the debtor-member the alternatives are apportioning the cnol in contravention of supreme court authority or treating all members of a consolidated_group as having no attributes except stock basis for reasons previously discussed at length the first alternative is unacceptable the second alternative would lead to the absurd result of giving group members the benefit of cod exclusion under sec_108 without the clearly intended corresponding attribute offset under sec_108 see eg 84_fedclaims_96 citing 826_f2d_1049 fed cir statutes and regulations must be construed to avoid absurd and whimsical results unrelated to congressional purpose posts-105004-09 for debtors in bankruptcy congress intended the current version of sec_108 to preserve the debtor's 'fresh start' after bankruptcy by excluding from the debtor's gross_income any cod income realized by the debtor in bankruptcy see s rep no 96th cong 2d sess at the same time congress enacted the attribute-reduction rules to ensure that the tax associated with excluded cod income was eventually collected within a reasonable period id pincite thus sec_108 merely defers the recognition of cod income by making the debtor's tax_attributes unavailable to offset income in later years the purpose of the section is not to give a wholesale permanent tax_benefit to a taxpayer with excluded cod income the exclusion of a member’s cod income from gross_income under sec_108 reduces the cti of the entire group for the consolidated_return_year during which the member realizes cod income under sec_61 because attribute reduction is a substitute for income inclusion in the year of the discharge the deferral policy of sec_108 is served by reducing the tax_attributes that are available to reduce the group’s cti and hence the consolidated_tax_liability in future consolidated_return years under the principles of sec_172 a consolidated_group may carry forward a cnol of the group to offset cti in future yearsdollar_figure as discussed above the entire cnol is available to offset the income generated by any member therefore the entire cnol should be available to offset the excluded cod income that stands in the place of taxable incomedollar_figure taxpayer’s sec_1017 argument the taxpayer makes a specific legislative intent argument based on the enactment of sec_1017 by the bankruptcy_tax_act_of_1980 sec_1017 provides a specific rule in the context of the election under sec_108 which offers a taxpayer the opportunity to reduce the basis of its depreciable_property before reducing its other tax_attributes under sec_1017 the stock of a member of a consolidated_group is treated as depreciable_property to the extent the subsidiary consents to a corresponding reduction in the basis of its depreciable_property the taxpayer argues that the existence of sec_1017 indicates that the statute invoked consolidated treatment where congress intended such treatment the taxpayer’s position appears to be that the existence of sec_1017 as the sole statutory mention of consolidated treatment means that congress intended all other attribute reduction rules to apply at a separate-entity level see taxpayer’s submission pincite sec_1_1502-21 and sec_1_1502-21a because each member of a consolidated_group is severally liable for the tax of the entire group the cnol deduction reduces each member s tax_liability without regard to that member s contribution to the cnol deduction see sec_1_1502-6 sec_1_1502-11 and sec_1_1502-21 posts-105004-09 the fact that congress enacted a special rule in sec_1017 for consolidated groups is not instructive as to what it intended under sec_108 sec_1017 permits debtors that are members of a consolidated_group to elect a treatment that is not otherwise imposed by the statute or regulations sec_1017 applies only for purposes of reducing basis in depreciable_property but subsidiary stock is not depreciable_property sec_1017 allows members of a consolidated_group to elect to treat subsidiary stock as depreciable_property but only if the subsidiary consents to a corresponding reduction in the basis of its depreciable_property such consolidated treatment can only be accomplished by a specific rule in the statute because asset basis is not otherwise a consolidated tax attributedollar_figure in contrast a specific consolidated_return rule is not required to reduce the cnol under sec_108 when a member of a consolidated_group has excluded cod income because the consolidated_return_regulations clearly provide that the cnol as well as many other tax_attributes is computed and applied on a consolidated basis of course congress is presumed to understand the existing law when it enacts a statute see eg 486_us_174 we generally presume that congress is knowledgeable about existing law pertinent to the legislation it enacts citing 459_us_297 congress enacted sec_108 against a backdrop of established consolidated_return_regulations at the time of the enactment of the bankruptcy_tax_act_of_1980 the consolidated_return_regulations provided that the only nol that a consolidated_group member could have from a consolidated_return_year was the cnol if congress had intended for sec_108 to be applied to group members by reducing an nol determined at the separate-member level it would have enacted a specific rule to allocate and apportion the cnol to such members for that purpose the law applicable to ------- the taxpayer argues that t he nopa fails to explain how a ‘principle’ or ‘rationale’ from a judicial decision is considered part of the ‘law applicable to’ within the meaning of sec_172 taxpayer’s submission pincite thus the taxpayer questions how the government may apply the supreme court’s analysis and holding with regard to the meaning of the consolidated_return_regulations to the issue at hand what the taxpayer refers to as merely a purported principle is in fact the chief holding of united dominion and must be regarded as a controlling legal principle as discussed above the definition of the nol of the debtor-member is the central question in this case the taxpayer takes the position that in this case the nol subject_to reduction under sec_108 is the debtor-member’s share of the cnol determined by applying the allocation and apportionment rules of sec_1_1502-21 as see brunswick u s dist lexis discussed above posts-105004-09 discussed above the taxpayer’s position is unsupportable under the consolidated_return_regulations which provide for the allocation and apportionment of the cnol only under specified circumstances in united dominion the supreme court expressly rejected the application of the allocation rule_of sec_1_1502-21 except under circumstances specifically sanctioned in the regulations the court held that aside from those specified allocation and apportionment instances the only nol in a consolidated_return is the cnol united dominion u s pincite in fact the court stated that it is fair to say that the concept of separate nol ‘simply does not exist ’ id pincite thus the supreme court in united dominion provided the answer to the central question in this case however the taxpayer argues that the supreme court’s jurisdiction on this point should not be applied to years prior to the date of united dominion the taxpayer argues that the law applicable to ------- the year in which the debtor- members realized excluded cod income does not include the united dominion decision the taxpayer is incorrect supreme court opinions generally have full retroactive effect see 509_us_86 when this court applies a rule_of federal_law to the parties before it that rule is the controlling interpretation of federal_law and must be given full retroactive effect in all cases still open on direct review and as to all events regardless of whether such events predate or postdate our announcement of the rule see also 511_us_298 citing 459_us_70 the principle that statutes operate only prospectively while judicial decisions operate retrospectively is familiar to every law student 215_us_349 judicial decisions have had retrospective operation for near a thousand years holmes j dissenting 590_f3d_87 2d cir citing 509_us_86 151_f3d_855 8th cir a judicial construction of a statute by the supreme court is an authoritative statement of what the statute meant before as well as after the decision of the case giving rise to that construction 497_f3d_491 5th cir the supreme court does not create law it discovers it 122_f3d_204 4th cir retroactively applying supreme court precedent regarding sec_104 miller v comm t c memo thus the fact that the year in issue here is and that the united dominion opinion was issued in is irrelevant that is the law applicable to ------- includes the supreme court’s interpretation of the consolidated_return_regulations in united dominion the taxpayer next argues that even if the holding in united dominion is considered to have retroactive effect with respect to its interpretation of the ten- posts-105004-09 year nol_carryback rule in sec_172 it is by no means clear that a principle or rationale from that decision would be considered part of the applicable law in for purposes of interpreting an entirely different code section taxpayer’s submission pincite the taxpayer appears to argue that the law applicable to language that appears in sec_172 which deals with the treatment of nols and nol carryovers and carrybacks somehow calls for a different special analysis in this case in support of its position the taxpayer cites 404_f2d_1119 2d cir a case in which substantive changes to the statute at issue resulted in different possible outcomes regarding the computation of an nol because of their impact across taxable years the application of nol carryovers and carrybacks may be complicated by changes in the statute which occur over time in fact the government agrees with the taxpayer that the identification of the nol that is subject_to reduction under sec_108 must be made under the statute and regulations applicable to the year in which the cod income was excluded however in the present case the taxpayer does not dispute that the applicable consolidated_return_regulations in ------- were in substance identical to those which the supreme court analyzed in united dominiondollar_figure because the applicable law in the current case has not changed callanan is irrelevant to the issue at hand 501_us_529 it is only when the law changes in some respect that an assertion of nonretroactivity may be entertained 122_f3d_204 4th cir as noted above the government and the taxpayer are in agreement about much in this case that the taxpayer to which sec_108 applies is the individual debtor- member that only the nol of that debtor-member is subject_to reduction under sec_108 and that the identification of the nol that is subject_to reduction under sec_108 must be made under the law applicable to the year in which the cod income was excluded the sole issue of contention is the definition of the nol of the debtor-member that question is squarely answered by the supreme court’s decision in united dominion the taxpayer is attempting to operate in a world in which united dominion does not exist in light of the supreme court’s retroactivity jurisprudence discussed above the taxpayer's position must fail taxpayer asserts that its position is reasonable the supreme court in united dominion analyzed the rules provided in sec_1_1502-11 and sec_1_1502-12 which govern the computation of the group’s cti and cnol and stated that the only definition of nol in the consolidated_return_regulations is the cnol additionally the supreme court examined the rule_of sec_1_1502-79 currently designated as sec_1_1502-79a and substantively identical to sec_1 b and concluded that this rule applies only for the specific purpose of establishing carryover and carryback amounts of nol posts-105004-09 the taxpayer in effect asserts that there was no governing regulation in existence during the period at issue and thus that its reasonable actions should prevail the taxpayer specifically argues t he government lost in united dominion because it asserted a position that it could have addressed by amending its consolidated_return_regulations but failed to do so taxpayer’s submission pincite the taxpayer is wrong in united dominion the government lost because it took a position regarding the definition of nol within a consolidated_group that was contrary to the rule contained in the consolidated_return_regulations in this case it is the taxpayer that is disregarding the definition of nol that is contained in those regulationsdollar_figure in its submission the taxpayer provides no statutory or regulatory authority to support its use of sec_1_1502-21 to apportion a part of the cnol to individual debtor- members as discussed above the only nol in a consolidated_group is the cnol absent an apportionment rule that specifically allows for its division for a particular purpose in united dominion the supreme court was faced with the issue of whether the cnol of a group should be used for the sec_172 computation or a separate nol of an individual member the court found that a separate nol cannot be used because such an item simply does not exist united dominion u s pincite in other words the consolidated nol regulation - the same regulation at issue herein - answered the question at hand there were no regulations issued that specifically dealt with the application of sec_172 to a consolidated_group member but the effect of sec_172 in the consolidated context depended on the general consolidated nol rules the court found the appropriate answer on the basis of those general consolidated nol rules the rationale of united dominion applies equally to the present case the taxpayer would like to create a separate nol to be reduced under sec_108 it invokes 77_tc_1149 and other authorities that allowed taxpayers to take reasonable action where the applicable law did not provide guidance on an issue the taxpayer argues that because the government issued no regulations specifically applying sec_108 in a consolidated context in the year at issue it is free to choose its own method however as discussed above just as in united dominion the current case concerns the identification of the nol within a consolidated_group the taxpayer has chosen to apply an approach to the issue that is not only different from the binding precedent of united dominion but is an approach that was expressly rejected by the supreme court in that case see rivers v roadway express throughout its submission the taxpayer accuses the government of attempting to retroactively apply single-entity principles to the application of the attribute reduction rules however as demonstrated above the government’s analysis is based exclusively on the statute and consolidated regulations in existence at the time of the cod posts-105004-09 inc 511_us_298 explaining that under our federal court system the supreme court’s interpretation of a statute is correct and all other readings are wrong in support of its argument that the use of the apportionment formula of sec_1 b to allocate the nol is not unreasonable the taxpayer notes that the regulations under sec_1_1502-28t issued in incorporate an apportionment rule using the formula contained in the sec_1_1502-21 regulationdollar_figure thus the taxpayer appears to argue that if it was reasonable for the government to amend a regulation to include a provision it is reasonable for the taxpayer to act as if a somewhat similar provision existed prior to the amendment regardless of supreme court precedent the court in united dominion held that the sec_1_1502-21 apportionment method can be used only where the consolidated_return_regulations specifically so indicate the court further stated that to the extent that the government is unsatisfied with the answer provided by the current regulations it is free to amend its regulations to change the prevailing answer see united dominion pincite for cases involving the application of sec_108 beginning in the government did so however that prospective amendment does not change the impact of the law applicable to the year at issue herein conclusion the sole issue in this case is the definition of the nol of the debtor-member the supreme court’s decision in united dominion squarely answered this question by holding that the only nol in a consolidated_group is the cnol absent a specific regulation providing for apportionment for a specified purpose the taxpayer argues that the nol of the debtor-members should be determined on a separate-entity basis the taxpayer applied sec_1_1502-21 to allocate the cnol to the debtor-members for reduction under sec_108 however for the year at issue there was no consolidated_return regulation that allocated and apportioned the cnol to a group member for attribute reduction purposes under sec_108 thus the cnol must be the pertinent nol available for reduction under sec_108 for the reasons discussed above the cnol is the nol subject_to reduction under sec_108 and the consolidated_return_regulations when a member of a consolidated_group realizes excluded cod income procedural matters this chief_counsel_advice responds to your request for assistance and may not be used or cited as precedent the writing may contain privileged information if disclosure is determined to be necessary please contact this office for our views this apportionment is part of a hybrid single-entity methodology that first allocates attributes to particular members of a group then reduces debtor-member specific attributes under sec_108 but which ultimately exposes all group attributes including the entire cnol to reduction under sec_108 we note that if the regulation had applied to this case group attributes equivalent to the entire amount of the excluded cod income would have been reduced under sec_108 posts-105004-09 please call if you have any further questions sincerely ______________________________ william d alexander associate chief_counsel corporate


internal_revenue_service number release date index number ---------------------- -------------- ---------------------------------------------- ------------------------------------ ---------------------------------------------- -------------------------------- legend department of the treasury washington dc third party communication none date of communication not applicable_person to contact -------------------------------- id no ---------- ------------------ telephone number ---------------------- refer reply to cc fip b04 plr-141077-12 date march taxpayer -------------------------------------------------------------------------------- ------------------------------------------------ date a date b date c date d date e date f date g date h tax_year foreign_country company a law firm accounting firm -------------------- -------------------- -------------------- ------------------------ -------------------- --------------------------- ------------------------ ------------------------ ------- -------------------------- ------------------------------- --------------------------------- ------------------------------------------------ plr-141077-12 individual ---------------------------- dear ---------------------- this is in response to a request submitted on behalf of taxpayer for a ruling granting an extension of time for making an election under sec_831 of the internal_revenue_code pursuant to sec_301_9100-3 of the procedure and administrative regulations to be effective for tax_year 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 ruling_request it is subject_to verification on examination facts taxpayer represents that it was incorporated on date a and licensed to issue property and casualty insurance contracts on date b under the laws of foreign_country taxpayer represents that it qualifies as an insurance_company for federal_income_tax purposes making it eligible to have the option to be taxed pursuant to sec_831 the sole shareholder of taxpayer is company a taxpayer’s primary purpose is to provide malpractice insurance law firm was retained to provide legal counsel on the formation and operation of taxpayer while accounting firm and specifically individual a certified_public_accountant was retained to prepare taxpayer’s tax returns on date c law firm filed a foreign_insurance_company election under sec_953 statement for taxpayer taxpayer received approval of it’s sec_953 election in a date d letter on date e law firm sent an a message to accounting firm requesting a copy of taxpayer’s federal tax_return or extension for the tax_year ending on date f prior to date e on date g law firm sent to officer of taxpayer and to individual a memorandum regarding important tax and financial reporting requirement individual did not have any knowledge regarding the formation of taxpayer at the time of receipt of this memorandum on or about date h the form 1120-pc u s property and casualty insurance_company income_tax return was filed for tax_year ending date f taxpayer represents that the granting of relief by the internal_revenue_service will not result in a lower tax_liability than taxpayer would have had if the sec_831 election was timely made law and analysis plr-141077-12 insurance_companies other than life_insurance_companies are taxable under sec_831 however certain insurance_companies can elect to pay an alternative_tax provided in sec_831 on only their taxable_investment_income sec_831 requires that a company elect the application of the alternative_tax imposed by sec_831 pursuant to sec_301_9100-8 this election must be made by the due_date taking into account any extensions of time to file obtained-by the taxpayer for the first taxable_year for which the election is effective under sec_301_9100-1 the commissioner may grant reasonable extension of time pursuant to sec_301_9100-2 and sec_301_9100-3 to make a regulatory election but no more than months except in the case when the taxpayer is abroad under all subtitles of the code except subtitles e g h and i sec_831 is part of subtitle a sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic_extension must be made pursuant to sec_301_9100-3 under sec_301_9100-3 relief will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not be prejudice the interests of the government under sec_301_9100-3 a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer i requests relief under this section before the failure to make the regulatory election is discovered by the internal_revenue_service ii failed to make the election because of intervening events beyond the taxpayer’s control iii failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity for the election iv reasonably relied on the advice of the internal_revenue_service or v reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election under sec_301_9100-3 a taxpayer will not be 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 under sec_301_9100-3 the interests of the government are not prejudiced if the tax_liability in the aggregate for all taxable years affected by the election will not be lower by granting the relief than if the election had been timely made taking into account the time_value_of_money based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied taxpayer requested relief under these provisions before the failure to make the regulatory election plr-141077-12 was discovered by the service and taxpayer reasonably relied on a qualified_tax professional ruling taxpayer is granted an extension of time until days following the date of this letter to make the election to be subject_to the alternative_tax provided in sec_831 for year caveats notwithstanding that an extension of time is granted under sec_301_9100-3 to make an election under sec_831 additions penalties and interest that would otherwise be applicable if any continue to apply with respect to the tax_return for year no ruling has been requested and no opinion is expressed or implied whether taxpayer is engaged in the issuing of insurance or annuity_contracts or the reinsuring of risks underwritten by insurance_companies or whether taxpayer qualifies as an insurance_company under sec_831 for year a copy of this ruling letter should be attached with taxpayer’s federal_income_tax return this ruling is directed only to the taxpayer who requested it sec_6110 k provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file in this office a copy of this ruling is being furnished to your authorized representative sincerely sarah e lashley assistant to the branch chief branch office of the associate chief_counsel financial institutions and products


internal_revenue_service number release date index number -------------- --------------------------- ---------------------------------- -------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------ telephone number -------------------- refer reply to cc psi b03 plr-133487-04 date date legend x ---------------------- ------------------------ ------------- y z a ------------------------- state -------- ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ --------------------- ---------------------- ---------------------- d1 d2 d3 dear ------------------ correspondence from x’s authorized representative requesting an extension of time this letter responds to a letter dated date and subsequent according to the information submitted z x’s predecessor was incorporated in plr-133487-04 under sec_301 of the procedure and administration regulations for x to file an election under sec_301_7701-3 to be treated as a corporation for federal tax purposes facts state on d1 and elected under sec_1362 of the internal_revenue_code to be treated as an s_corporation effective d2 became x x’s partners are y a state limited_liability_company treated as a disregarded_entity for federal tax purposes and a an individual who is also y’s sole owner x intended to file an election under sec_301_7701-3 to be treated as a corporation for federal tax purposes however due to inadvertence the form_8832 entity classification election was not filed timely law and analysis on d3 z converted into a limited_partnership for state law purposes and sec_301_7701-3 provides guidance on the classification of a domestic eligible_entity for federal tax purposes under sec_301_7701-3 unless it elects otherwise a domestic eligible_entity is i a partnership if it has two or more members or ii disregarded as an entity separate from its owner if it has a single owner sec_301_7701-3 provides that an eligible_entity may elect to be classified other than as provided in ' b by filing form_8832 with the service_center designated on the form sec_301_7701-3 provides that an election under ' c i will be effective on the date specified on form_8832 or on the date filed if no such date is specified on the form the effective date specified on form_8832 cannot be more than days prior to the date the form is filed and cannot be more than months after the date on which the form is filed sec_301_9100-1 provides that the commissioner has discretion to grant a reasonable extension of time under the rules set forth in and 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 sec_301_9100-1 defines a regulatory election to include an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-2 provides the rules governing automatic extensions of time for making certain elections plr-133487-04 sec_301_9100-3 sets forth the standards the commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of ' under ' a request for relief 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 granting relief will not prejudice the interests of the government sec_301_9100-3 provides in part that a taxpayer is deemed to have based on the facts submitted and representations made we conclude that the acted reasonably and in good_faith if the taxpayer failed to make the election because after exercising reasonable diligence taking into account the taxpayer’s experience and the complexity of the return or issue the taxpayer was unaware of the necessity of the election or the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election conclusions requirements of ' have been satisfied as a result x is granted an extension of time of days from the date of this letter to file form_8832 and elect to be classified as an association_taxable_as_a_corporation for federal tax purposes effective d3 a copy of this letter should be attached to the form_8832 the federal tax consequences of any aspect of any transaction or item discussed or referenced in this letter specifically we express or imply no opinion concerning whether the conversion of z to x qualifies as a reorganization under sec_368 whether x as a state limited_partnership has more than one class of stock under sec_1361 and thus is ineligible to be an s_corporation or whether x is otherwise eligible to be an s_corporation see revproc_99_51 1999_2_cb_750 revproc_2004_3 2004_1_irb_114 sec_5 provides that it may not be used or cited as precedent except as expressly provided herein we express or imply no opinion concerning this ruling is directed only to the taxpayer who requested it sec_6110 plr-133487-04 this letter to x’s authorized representative pursuant to a power_of_attorney on file with this office we are sending a copy of s sincerely heather c maloy associate chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes cc


internal_revenue_service number release date index number ---------------------- ------------------------- ----------------------------- ---------------------------- -------------------------------------- ------------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------------ ---------------------------------------------------- telephone number --------------------- refer reply to cc intl b03 plr-121662-09 date date do ----------------------------------------------- do ----------------------------------------------- dear -------------- corp a taxable_year a date u country h country i date v corp b corp c corp d ------------------------------------------------------------------------------------------- --------------------- ------- -------------------------- ------------- ---------------------------- --------------------------- ---------------------------------------- ---------------- -------------------------- dear -------------- this is in response to your letter dated date in which you request consent for corp a to revoke effective for taxable_year a ended date u and for all subsequent taxable years its elections for itself and various subsidiaries to use the safe_harbor method described in sec_1_901-2a in determining the amount of foreign_income_tax paid_or_accrued by corp a to countries h and i the due_date including extensions for corp a’s tax_return for the taxable_year ended date u is date v which is more than days after date the information submitted for consideration is substantially as set forth below the ruling contained in this letter is based upon information and representations you submitted and accompanied by your penalty of perjury statement while this office has plr-121662-09 not verified any of the material submitted in support of the request for a ruling it is subject_to verification on examination corp a is an accrual basis delaware corporation that files its tax_return on a calendar_year corp a is the common parent of an affiliated_group_of_corporations including corp b corp c and corp d that join in the filing of a consolidated u s federal_income_tax return corp a corp b corp c and corp d elected to apply the safe_harbor method with respect to qualifying levies paid to country h beginning in taxable years more than three taxable years prior to taxable_year a also corp c elected to apply the safe_harbor method with respect to qualifying levies paid to country i beginning in a taxable_year more than three taxable years prior to taxable_year a none of these safe_harbor elections have been revoked pursuant to sec_1_901-2a sec_1_901-2a permits dual capacity taxpayers in computing foreign tax_credits for qualifying levies of each country to use either a facts and circumstances method or a safe_harbor method to determine the amount of a levy that is not paid in exchange for a specific_economic_benefit sec_1_901-2a describes the manner in which taxpayers may elect and revoke the safe_harbor method sec_1_901-2a provides that the safe_harbor method election may not be revoked without the consent of the commissioner consent is normally given provided the conditions set forth in the regulation are satisfied the regulation provides that an application_for consent to revoke the election must be made not later than days before the due_date including extensions for the filing of the income_tax return for the first taxable_year for which the revocation is sought to be effective with certain exceptions not applicable to this situation the commissioner may make his consent to any revocation conditioned upon adjustments being made in one or more taxable years so as to prevent the revocation from resulting in a distortion of the amount of any item relating to tax_liability in any taxable_year the commissioner will normally consent to a revocation under the circumstances described in sec_1_901-2a through vi sec_1_901-2a provides that the commissioner will normally consent to a revocation of a safe_harbor election if the election has been in effect with respect to at least three taxable years prior to the taxable_year for which the revocation is to be effective based solely on the information and representations submitted corp a’s application_for consent to revoke the safe_harbor elections of corp a corp b corp c and corp d with respect to qualifying levies of country h and country i was made more than days before date v the due_date including extensions for corp a’s u s consolidated federal_income_tax return for taxable_year a and the applicable safe_harbor elections plr-121662-09 have been in effect for at least three taxable years prior to taxable_year a accordingly consent is granted to corp a to revoke the safe_harbor elections of corp a corp b corp c and corp d with respect to qualifying levies of country h and country i effective for taxable_year a and for all subsequent taxable years no opinion was requested and no opinion is expressed as to whether based upon all of the relevant facts and circumstances the amount if any paid pursuant to a levy or levies imposed by country l is not an amount_paid in exchange for a specific_economic_benefit 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 this ruling is directed only to the taxpayer requesting it sec_6110 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 a copy of this letter is being sent to your authorized representative 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 and control number of the letter_ruling sincerely richard l chewning senior counsel branch international


office_of_chief_counsel internal_revenue_service memorandum number release date cc pa apjp b2 amielke postn-112965-06 uilc date date to vicki martinson technical services advisor oakland advisory group technical services area cal-west from blaise g dusenberry subject special counsel procedure administration impact of the expiration of the statute_of_limitations for assessment on the service's determination with respect to a taxpayer's sec_6166 election this chief_counsel_advice responds to your request for assistance dated date in accordance with sec_6110 this chief_counsel_advice may not be used or cited as precedent issue sec_1 whether there is a statutory period of limitations for obtaining either a surety bond or sec_6324a special lien from the taxpayer when a taxpayer makes a sec_6166 election whether the expiration of the period of limitations for assessment under sec_6501 precludes the service from obtaining either a surety bond or sec_6324a special lien from the taxpayer or denying terminating a sec_6166 election when the service is unable to secure either of the above forms of security postn-112965-06 whether issuing a closing letter to the executor of the estate prohibits the service from obtaining either a surety bond or sec_6324a special lien from a taxpayer who makes a sec_6166 election conclusion sec_1 there is no limitations_period under any internal_revenue_code the code section for obtaining security from a taxpayer electing to pay the estate_tax in installments under sec_6166 as long as the assessment remains unpaid sec_6501 sets forth a three-year period of limitations on assessment of estate_tax the service’s ability however to demand that the taxpayer provide security under sec_6166 with respect to the deferred payments is separate and distinct from the service's ability to assess a tax thus the service may demand security at any time notwithstanding or even after the period of limitations on assessment has expired so long as the assessment remains unpaid issuing a closing letter to the executor of the estate will not prevent the service from obtaining a surety bond under sec_6165 or sec_6324a special lien from the taxpayer facts an estate has properly elected on its timely filed united_states estate and generation- skipping transfer_tax return form_706 to pay a portion of the estate_tax in installments under sec_6166 the period of limitations on assessment has expired and the service has issued a closing letter to the executor of the estate the estate has not yet provided a sec_6165 bond or granted the service a sec_6324a lien in lieu of the bond in addition the service has not yet granted the estate the sec_6166 election law and analysis as a general_rule the estate_tax_return form_706 and payment of the estate_tax liability of a decedent are due within nine months of the decedent’s death sec_6075 a sec_6166 of the internal_revenue_code as an exception to the above rule provides that if the value of an interest_in_a_closely_held_business included in determining the value of the gross_estate of a decedent exceed sec_35 percent of the adjusted_gross_estate the executor of the estate may elect to pay part or all of the tax imposed by sec_2001 estate_tax in two or more but not exceeding ten equal installments the first installment of tax must be paid on or before the date selected by the executor which is not more than years after the date prescribed by sec_6151 for payment of the tax an executor electing to defer estate_taxes under sec_6166 must make annual payments of interest during the deferral_period in particular interest must be paid annually during the five-year period before the first installment of tax is postn-112965-06 due sec_6166 when an estate fails to make payments of principal or interest the service may terminate the deferred payment election and force an acceleration of payment of the estate_tax by issuing notice_and_demand sec_6166 under the provisions of sec_6166 an election to pay the estate_tax in installments must be made on a timely filed return sec_6166 sec_20_6166-1 of the estate_tax regulations set forth the required contents of an election under sec_6166 which includes in part the amount of tax to be paid in installments the date selected for payment of the first installment and the number of installments in which the tax is to be paid in addition sec_6166 provides that if the executor has not made an election under sec_6166 a deficiency is imposed and the estate qualifies under sec_6166 the executor may elect within days of the issuance of notice_and_demand to pay the deficiency in installments provided the deficiency is not due to negligence intentional_disregard_of_rules_and_regulations or fraud with intent to evade tax with regards to the service’s ability to require security for a sec_6166 election sec_6166 and specifically cross reference sec_6165 and sec_6324a these sections allow the secretary to require security in the case of an extension under sec_6166 sec_6165 states that in the event the secretary grants any extension of time within which to pay any_tax or any deficiency therein the secretary may require the taxpayer to furnish a bond in such amount not exceeding double the amount with respect to which the extension is granted conditioned upon the payment of the amount extended in accordance with the terms of such extension pursuant to this statutory provision the service may require an executor to provide a bond with respect to estate_taxes deferred under sec_6166 in the alternative the service has indicated that an executor desiring to be discharged from personal liability can elect a sec_6324a lien sec_2204 such a lien will be in lieu of the bond required pursuant to sec_6165 sec_6324a the sec_6324a lien will also be in lieu of the estate_tax lien which arises under sec_6324 sec_6324a issue sec_1 and under the federal self-assessment system of taxation every taxpayer liable for any_tax imposed by the internal revenue laws is required to file a return on forms prescribed by the service and to show thereon information upon which the tax_liability can be determined sec_6011 sec_601_103 in most cases the taxpayer’s self-assessment of tax_liability is accepted and becomes the final tax_liability determination pursuant to sec_6201 the service is authorized to make inquiries determinations and assessments of all taxes including interest and penalties in addition the service can assess the tax as reported by the taxpayer on the return or as determined by the service through audit if upon audit an initial determination is made that a taxpayer has not determined the correct_tax liability and that additional tax is due such determination becomes a final_determination of tax_liability if the taxpayer agrees with or does not contest the service’s determination postn-112965-06 sec_6211 defines a deficiency as the amount by which the tax imposed exceeds the amount shown as tax on the taxpayer’s return plus any amounts previously assessed less the amounts of any rebates in such cases the service issues a notice_of_proposed_deficiency which details the nature and amount of the proposed adjustments the letter also sets forth the taxpayer’s right to appeal the proposed adjustments to appeals if the taxpayer does not timely avail itself of the right to seek appeals consideration a statutory_notice_of_deficiency is issued to the taxpayer this letter informs the taxpayer that they have days in which to file a petition with the tax_court to contest the deficiency as a general_rule a tax reported on a return or any deficiency determined by the service must be assessed by the service within three years after the taxpayer files the return sec_6501 sec_6503 suspends the limitation period for collection during any extension of time for estate_tax payment under sec_6161 sec_6163 or sec_6166 yet the taxpayer’s obligation to provide security under sec_6166 is separate and distinct from the service’s ability to assess and or collect and the procedures under sec_6501 and sec_6213 have no effect on sec_6166 determinations sec_7479 sets forth a declaratory_judgment remedy for taxpayers regarding an estate’s qualification for the sec_6166 election until the enactment of the taxpayer_relief_act_of_1997 however the tax_court had no jurisdiction to resolve disputes between an estate and the irs regarding an estate's qualification for sec_6166 deferral publaw_105_34 111_stat_788 to limit the potential hardship caused by an erroneous denial of a sec_6166 election a declaratory_judgment remedy was added to the code under sec_7479 under sec_7479 however the tax_court may not issue a declaratory_judgment unless the taxpayer has exhausted all administrative remedies within the service several steps must be taken in order to exhaust all available administrative remedies revproc_2005_33 2005_24_irb_1231 first the taxpayer must timely file including extensions a form_706 on behalf of the estate and attach the election to extend the time to pay pursuant to sec_6166 next the taxpayer must request in writing an appeals_conference within calendar days after the mailing date of the preliminary determination_letter or by such later date as is agreed to between the taxpayer and the service upon reaching a final_determination appeals will issue a final_determination letter to the taxpayer the determination by appeals regarding the estate’s initial or continuing eligibility under sec_6166 is final and may not be appealed further within the service in the final_determination letter the taxpayer receives notice of the right to petition the tax_court under sec_7479 a review of the applicable authority indicates that there is no statutory period of limitations for obtaining security for a sec_6166 election as long as the assessment has not been satisfied to the extent possible security should be obtained from the taxpayer as early in the sec_6166 election process as is feasible we believe the postn-112965-06 service may seek security or additional security for the sec_6166 election at any time including instances where the security may no longer sufficiently secure the service’s interest this is so because once the service has granted the sec_6166 election the estate_tax liability is not currently due and payable without security the service’s interest in the estate_tax liability would be unsecured for the duration of the deferral under sec_6166 just like a lender the service has the ability to seek security to shelter its unprotected interest during the period of time the estate_tax liability is deferred similarly the expiration of the limitations_period on assessment under sec_6501 does not impact the ability of the service to seek security for a sec_6166 election this is true regardless of whether the sec_6166 election was made on a timely filed estate_tax_return or made with respect to a deficiency pursuant to sec_6166 if an election was made pursuant to sec_6166 it would be done after completion of the audit and after the taxpayer receives notice_and_demand to pay the deficiency permitting the taxpayer to make the sec_6166 election on a deficiency further supports the conclusion that the expiration of the limitations_period on assessment has no effect on the service’s ability to seek security for a sec_6166 election in addition it is also our view that a sec_6166 election can be denied or terminated at any time if the service is unable to obtain a sec_6165 bond or 6324a special lien in lieu of the bond such denial or termination does not impede upon any taxpayer rights given that the taxpayer has the opportunity to appeal the decision through administrative remedies and if the matter can not be resolved through appeals to petition the tax_court under sec_7479 for declaratory_judgment issue if an audit is settled at the examination or the appeals level the service will send an estate_tax closing letter to the executor sec_2204 this letter is evidence that the tax_return for the estate has either been accepted as filed or has been accepted after an adjustment in addition the closing letter provides that if the time for payment has been extended under sec_6161 sec_6163 or sec_6166 personal liability shall not be released until full payment has been received the issuance of the closing letter is designed to provide a measure of assurance that the estate's federal tax_liabilities have been satisfied or fixed and determined in the case where the tax is deferred under sec_6161 or thus permitting the closing of the probate_estate at the local level notifying the taxpayer that the estate_tax liability has been fixed and determined is unrelated to the determination of when the tax is due thus terminating or denying a sec_6166 election will have no impact on the estate_tax liability rather it will only accelerate the payment_date it is also important to note that an estate_tax closing letter is not a formal closing_agreement under sec_7121 accordingly the issuance of a closing letter has no effect on the service’s ability to require a sec_6165 bond or should the executor chose a sec_6324a lien in lieu of the bond rather the closing letter merely provides that the service will not reopen audit the postn-112965-06 return unless notified by the executor or there is evidence of fraud malfeasance collusion concealment or misrepresentation of material fact a clearly defined substantial error based upon an established service position or a serious administrative error case development hazards and other considerations this writing may contain privileged information any unauthorized disclosure of this writing may undermine our ability to protect the privileged information if disclosure is determined to be necessary please contact this office for our views please call if you have any further questions


internal_revenue_service national_office technical_advice_memorandum july third party communication none date of communication not applicable number release date index uil no case-mis no --------------------- ------------------------------------------------------------------------------------------- tam-161588-03 cc psi b8 taxpayer's name taxpayer's address taxpayer's identification no years involved date of conference ---------------------------------------------------- ----------------------------------------------- ----------------------------------------- ---------------- --------------------------- no conference held air carrier ---------------------------------------------------- legend issue when does air carrier incur an obligation to report and deposit the tax imposed by sec_4261 of the internal_revenue_code under the circumstances described below air carrier incurs an obligation to report and deposit the tax imposed by sec_4261 conclusion when the charterer’s payments are disbursed to air carrier under the circumstances described below facts applicable dot regulations require air carrier’s charterer to pay for its charter by air carrier is a certificated air carrier as defined in cfr sec_212 department tam-161588-03 of transportation regulations air carrier leases aircraft and supplies the crews for these aircraft air carrier uses these aircraft and crews to provide single entity charter air service to the public this service is taxable air transportation a single entity charter is a charter the cost of which is borne by the charterer and not by the individual passengers directly or indirectly see cfr sec_212 the department of transportation dot regulates air carrier’s charter flights making a check money order or credit card draft payable to a bank with whom air carrier has a depository escrow account as described in cfr sec_212 these regulations also prescribe the conditions air carrier must meet before the bank disburses the deposited payments to air carrier sec_212 a provides that a carrier must certify in writing to the bank that a charter has been completed before the bank will pay to the carrier the escrowed funds with respect to that charter in the case of a round-trip charter the regulations provide for payment upon completion of the outbound segment sec_212 a provides for refunds of escrowed payments less any cancellation penalties as provided in the charter contract in the event a charter is cancelled these regulatory requirements are intended to protect charterer’s payments until air carrier furnishes the services for which payment is made it for taxable air transportation air carrier uses the regular_method rather than the alternative method for depositing the sec_4261 tax see sec_40_6302_c_-1 and sec_40 c - of the of the excise_tax procedural regulations air carrier collects and pays over the sec_4261 tax with respect to amounts paid to the irs office that submitted this request for technical_advice suggests that air carrier incurs an obligation to report and deposit the sec_4261 tax when air carrier’s bank credits air carrier’s depository escrow account with a charterer’s payment because the office believes this deposit constitutes payment for the charter air carrier argues on the other hand that until it receives payment for air transportation as a disbursement by its bank from the depository escrow account there is not an obligation to report and deposit the sec_4261 tax law and analysis sec_4261 imposes a tax on the amount_paid for taxable air transportation of any person sec_4261 generally provides that the tax imposed by sec_4261 is paid_by the person making the payment subject_to tax and sec_4291 generally provides that the tax is collected by the person receiving payment from the person making the payment tam-161588-03 sec_40_6011_a_-1 provides that a return for the tax imposed by sec_4261 must be made for a period of one calendar_quarter a return must be filed for each calendar_quarter in which the tax must be collected and paid over sec_40 a - a provides that in the case of a tax required to be collected and paid over the person required to collect the tax and not the person incurring the liability must file the return sec_40_6302_c_-1 generally provides that each person required to file a quarterly return must make a deposit of tax for each semimonthly period in which tax_liability is incurred sec_40_6302_c_-1 provides that with respect to the regular_method for depositing the tax imposed by sec_4261 is treated as a tax_liability incurred during the semimonthly period in which that tax is collected as noted dot regulations require that a bank hold a charterer’s payment until air carrier furnishes the services for which payment is made a bank receives the charter payment in its limited capacity as custodian of the air carrier’s depository_account the bank ultimately disburses the deposited payments to air carrier or returns the deposited payments to the charterer depending on whether air carrier meets the dot regulatory requirements for receipt of the deposited payments therefore payment for a charter flight is neither collected nor received by air carrier until the bank disburses to air carrier the deposited payment on the date of the bank’s disbursement air carrier incurs the obligation to report and deposit the sec_4261 tax because that is the date on which the tax is collected see sec_40_6302_c_-1 caveats a copy of this technical_advice_memorandum is to be given to the taxpayer sec_6110 provides that it shall not be used or cited as precedent in accordance with sec_6110 names addresses and other identifying numbers have been deleted


internal_revenue_service department of the treasury number release date index numbers washington dc person to contact telephone number refer reply to cc corp - plr-110191-02 date date legend parent purchaser purchaser partnership target sellers date a date b company official tax professional plr-110191-02 dear this letter responds to a letter dated date submitted on behalf of parent requesting an extension of time under sec_301_9100-1 through of the procedure and administration regulations to file an election parent is requesting an extension to file a sec_338 election under sec_338 with respect to the acquisition of the stock of target sometimes hereinafter referred to as the election on date a all citations in this letter to regulations under sec_338 are to regulations in effect on date a additional information was received in a letter dated date the material information is summarized below parent is the common parent of a consolidated_group purchaser is a wholly owned subsidiary of parent purchaser is an llc wholly owned by purchaser and disregarded as an entity separate from purchaser for federal_income_tax purposes target is a foreign_corporation wholly owned by partnership a domestic_partnership sellers were the only partners of partnership on date a pursuant to a purchase agreement of the same date purchaser and purchaser acquired all of sellers’ partnership interests in partnership in exchange for cash it is represented that the acquisition of target by means of the acquisition of all of the partnership interests in partnership qualified as a qualified_stock_purchase as defined in sec_338 prior to the acquisition target did not file a united_states income_tax return was not subject_to united_states income_taxation nor was required under sec_1_6012-2 to file a united_states income_tax return target is a controlled_foreign_corporation within the meaning of sec_957 target is not a passive_foreign_investment_company for which an election under sec_1295 was in effect or foreign_investment_company or foreign_corporation the stock ownership of which is described in sec_552 parent intended to file the election the election was due on date b 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 sec_301_9100-1 for an extension of time to file the election the period of limitations on assessment under sec_6501 has not expired for parent’s consolidated group’s or target’s taxable_year in which the acquisition occurred the taxable_year in which the election should have been filed or any taxable_year that would have been affected by the election had it been timely filed sec_338 permits certain stock purchases to be treated as asset acquisitions if the purchasing_corporation makes or is treated as having made a sec_338 election or a sec_338 election and the acquisition is a qualified_stock_purchase under sec_301_9100-1 the commissioner has discretion to grant a reasonable extension of time to make a regulatory election or a statutory election but no more plr-110191-02 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 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make a regulatory election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 in this case the time for filing the election is fixed by the regulations ie sec_1_338-2t d therefore the commissioner has discretionary authority under sec_301_9100-1 to grant an extension of time for parent to file the election provided parent acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_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 professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that parent reasonably relied on a qualified_tax professional who failed to make or advise parent to make the election and that the government will not be prejudiced if relief is granted see sec_301_9100-3 based on the facts and information submitted including the representations made we conclude that parent has shown it acted reasonably and in good_faith the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and granting relief will not prejudice the interests of the government accordingly an extension of time is granted under sec_301_9100-1 until days from the date on this letter for parent to file the election with respect to the acquisition of the stock of target as described above the above extension of time is conditioned on the filing within days of the date on this letter of all returns and amended returns if any necessary to report the transaction in accordance with the election and the taxpayers' parent’s consolidated group’s and target’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 taxpayers’ 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 further no opinion is expressed as to the federal_income_tax effect if any if it is determined that the taxpayers’ tax_liability is lower sec_301_9100-3 parent must file the election in accordance with sec_1_338-2t d that is a new election on form_8023 must be executed on or after the date on this letter which grants an extension and filed in accordance with the instructions to the form a copy of this plr-110191-02 letter must be attached to the election form parent must file or amend as applicable its return to report the transaction as a sec_338 transaction for the taxable_year in which the transaction was consummated and for any other affected_taxable_year and to attach to the return a copy of this letter and a copy of the election we express no opinion as to whether the acquisition of the target’s stock qualifies as a qualified_stock_purchase under sec_338 or any other tax consequences arising from the election in addition we express no opinion as to the tax consequences of filing the election late under the provisions of any other section of the code and regulations or as to the tax treatment of any conditions existing at the time of or resulting from filing the election late that are not specifically set forth in the above ruling for purposes of granting relief under sec_301_9100-1 we relied on certain statements and representations made by the taxpayers however the director should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-1 to file the election penalties and interest that would otherwise be applicable if any continue to apply this letter is directed only to the taxpayer s who requested it sec_6110 provides that it may not be used or cited as precedent pursuant to the power_of_attorney on file in this office a copy of this letter is being sent to your authorized representative cc sincerely yours ken cohen senior technician reviewer branch office of associate chief_counsel corporate