internal_revenue_service number release date index number - --------------- -------------------------- ---------------------------------- -------------------------------- - department of the treasury washington dc person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 - plr-165173-03 date feb --------------------------------- ---------------------------------------------- x y date legend ------------------------------------------------------------ ------------------------------------------------------------ dear -------------- ------------------- ----------------- ------------ country ---------- date state this private_letter_ruling is in response to your request dated date on behalf of x requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election to be disregarded as an entity separate from its owner for federal tax purposes under sec_301_7701-3 based on the information submitted and representations made within x is a country entity formed on date x represents that as of date x was eligible to make an election under sec_301_7701-3 to be disregarded as an entity separate from facts plr-165173-03 its owner for federal income purposes however the form_8832 entity classification election was inadvertently not timely filed x is one of several foreign entities that is indirectly owned by y a state law limited_partnership law and analysis under sec_301_9100-1 the commissioner may grant a reasonable sec_301_7701-3 provides guidance on the classification of a foreign eligible_entity for federal tax purposes generally a foreign eligible_entity is treated as an association_taxable_as_a_corporation if all members have limited_liability unless the entity makes an election to be treated otherwise if a foreign eligible_entity has one owner it may elect to be treated as a disregarded_entity pursuant to the rules in sec_301_7701-3 if a foreign eligible_entity has more than one owner it may elect to be treated as a partnership pursuant to the rules in sec_301_7701-3 sec_301_7701-3 provides that an entity classification election must be filed on form_8832 and can be effective up to days prior to the date the form is filed or up to months after the date on which the form is filed extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the code except subtitles e g h and i sec_301_9100-1 defines the term regulatory election as including an election whose deadline is prescribed by a regulation published in the internal_revenue_bulletin commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 elections sec_301_9100-3 provides extensions for time for making elections that do not meet the requirements of sec_301_9100-2 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 a requests for relief under sec_301_9100-3 will be granted when the taxpayer sec_301_9100-2 provides automatic extensions of time for making certain sec_301_9100-1 through provide the standards the conclusion based solely on the facts submitted and representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly x is granted an extension of time of sixty days from the date of this letter to elect to be disregarded as an entity separate from its owner for federal tax purposes effective except as expressly provided herein no opinion is expressed or implied plr-165173-03 date the election should be made by filing form_8832 with the appropriate service_center a copy of this letter should be attached to the election concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter the internal_revenue_code provides that it may not be used or cited as precedent letter will be sent to the taxpayer this ruling is directed only to the taxpayer s requesting it sec_6110 of in accordance with the power_of_attorney on file with this office a copy of this sincerely heather c maloy associate chief_counsel passthroughs special industries enclosures cc copy of this letter copy for sec_6110 purposes


internal_revenue_service department of the treasury number release date index number 468a washington dc person to contact telephone number refer reply to cc psi 6-plr-118146-03 date date in re revised schedule of ruling amounts legend plant taxpayer commission a commission b commission c commission d a b c d e f g h i j k l m n o p q r plr-118146-03 s t u v w x y z aa dear this letter responds to the request of taxpayer dated and supplemental information as submitted by taxpayer for a revised schedule of ruling amounts relating to plant's qualified nuclear decommissioning fund fund in accordance with sec_1_468a-3 of the income_tax regulations taxpayer is requesting a new schedule of ruling amounts pursuant to sec_1_468a-3 which requires a new schedule of ruling amounts ten years after the issuance of the most recent schedule of ruling amounts taxpayer previously received a schedule of ruling amounts pertaining to plant on a information was submitted pursuant to sec_1_468a-3 taxpayer owns b percent of the plant the license for the plant expires on c commission a commission b commission c and commission d have regulatory jurisdiction over the rates charged by taxpayer with respect to plant a portion of taxpayer’s wholesale operations consist of sales to the joint owners of d taxpayer and its affiliated corporations file a consolidated tax_return and are under the audit jurisdiction of the industry director natural_resources and construction lm nrc the jurisdictional percentages allocable to commissions a b c and d are x y z and aa respectively commission a in e effective f authorized nuclear decommissioning costs to be included in cost of service for ratemaking purposes for the plant in the amount of g commission b in h effective i authorized nuclear decommissioning costs to be included in cost of service for ratemaking purposes for the plant in the amount of j commission c in k effective l authorized nuclear decommissioning costs to be included in cost of service for ratemaking purposes for the plant in the amount of m commission d through a series of interconnection agreements of various dates authorized nuclear decommissioning costs to be included in cost of service for ratemaking purposes the commissions use the same assumptions estimates and factors in determining decommissioning costs therefore the total estimated cost of plr-118146-03 decommissioning is n for each of the commissions this base cost escalated using an estimated inflation rate of o results in an estimated future cost of p the level_funding limitation period and the funding_period are q through r the assumed after-tax rate of return to be earned by the assets of the fund is o the rate of escalation to determine the future cost of decommissioning the plant is o the proposed method of decommissioning the plant is prompt removal dismantling taxpayer has determined the estimated period for which the fund is to be in effect is s years t through u and the estimated_useful_life of the plant is v years t through r therefore the qualifying percentage is w sec_468a of the code provides that a taxpayer may elect to deduct the amount of payments made to a qualified decommissioning fund however sec_468a limits the amount_paid into such fund for any taxable_year to the lesser_of the amount of nuclear decommissioning costs allocable to this fund which is included in the taxpayer's cost of service for ratemaking purposes for the tax_year or the ruling_amount applicable to this year sec_468a of the code provides that no deduction shall be allowed for any payment to the nuclear decommissioning fund unless the taxpayer requests and receives from the secretary a schedule of ruling amounts the ruling_amount for any_tax year is defined under sec_468a as the amount which the secretary determines to be necessary to fund that portion of nuclear decommissioning costs which bears the same ratio to the total nuclear decommissioning costs with respect to the nuclear power plant as the period for which the nuclear decommissioning fund is in effect bears to the estimated_useful_life of the plant this term is further defined to include the amount necessary to prevent excessive funding of nuclear decommissioning costs or funding of these costs at a rate more rapid than level_funding taking into account such discount rates as the secretary deems appropriate sec_468a of the code provides that a taxpayer shall be deemed to have made a payment to the nuclear decommissioning fund on the last day of a taxable_year if the payment is made on account of such taxable_year and is made within ½ months after the close of the tax_year sec_1_468a-1 of the regulations provides that an eligible_taxpayer may elect to deduct nuclear decommissioning costs under sec_468a of the code an eligible_taxpayer as defined under sec_1_468a-1 of the regulations is a taxpayer that has a qualifying interest in among other things a direct ownership_interest including an interest as a tenant in common or joint tenant sec_1_468a-2 of the regulations provides that the maximum amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year shall not exceed the lesser_of i the cost of service amount applicable to the nuclear decommissioning fund for such tax_year or ii the ruling_amount applicable to plr-118146-03 the nuclear decommissioning fund for such tax_year if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b the excess is not deductible by the electing taxpayer in addition under sec_1_468a-5 there are rules which provide that the internal_revenue_service may disqualify a nuclear decommissioning fund if the amount of cash payments made or deemed made to a nuclear decommissioning fund during any_tax year exceeds the limitation of paragraph b sec_1_468a-3 of the regulations provides that in general a schedule of ruling amounts for a nuclear decommissioning fund is a ruling specifying annual payments that over the tax years remaining in the funding_period as of the date the schedule first applies will result in a projected balance of the nuclear decommissioning fund as of the last day of the funding_period equal to and in no event more than the amount of decommissioning costs allocable to the fund sec_1_468a-3 of the regulations provides that to the extent consistent with the principles and provisions of this section each schedule of ruling amounts shall be based on the reasonable assumptions and determinations used by the applicable public_utility commission in establishing or approving the amount of decommissioning costs to be included in the cost of service for ratemaking purposes under sec_1_468a-3 the internal_revenue_service shall provide a schedule of ruling amounts identical to the schedule proposed by the taxpayer but no such schedule shall be provided by the service unless the taxpayer's proposed schedule is consistent with the principles and provisions of that section sec_1_468a-3 of the regulations provides that in general the amount for any_tax year in the level_funding limitation period shall not be less than the ruling_amount for any earlier tax_year under sec_1_468a-3 the level_funding limitation period begins on the first day of the first tax_year for which a deductible payment is made to the nuclear decommissioning fund and ends on the last day on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes sec_1_468a-3 of the regulations provides that the amount of decommissioning costs allocable to a nuclear decommissioning fund is the taxpayer's share of the total estimated cost of decommissioning the nuclear power plant multiplied by the qualifying percentage sec_1_468a-3 of the regulations provides that in general the total estimated cost of decommissioning a nuclear power plant is the reasonably estimated cost of decommissioning used by the applicable public_utility commission in establishing or approving the amount of these costs to be included in cost of service for ratemaking purposes plr-118146-03 sec_1_468a-3 of the regulations provides that a taxpayer's share of the total estimated cost of decommissioning a nuclear power plant equals the total estimated cost of decommissioning such plant multiplied by the taxpayer's qualifying interest in the plant under sec_1_468a-3 the qualifying percentage for any nuclear decommissioning fund is equal to a fraction the numerator of which is the number of tax years in the estimated period for which the nuclear decommissioning fund is to be in effect and the denominator of which is the number of tax years in the estimated_useful_life of the applicable plant sec_1_468a-3 of the regulations provides that the estimated period for which a nuclear decommissioning fund is to be in effect begins on the later of the first day of the first taxable_year for which a deductible payment is made to the nuclear decommissioning fund or deemed made or the first day of the taxable_year that includes the date that the nuclear power plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the estimated_useful_life of a nuclear power plant begins on the first day of the taxable_year that includes the date that the plant begins commercial operations as determined by the applicable public_utility commission at the time the plant was first included in the taxpayer's rate base and ends on the last day of the taxable_year that includes the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes according to sec_1_468a-3 the estimated date on which the nuclear power plant will no longer be included in the taxpayer's rate base for ratemaking purposes is determined under the ratemaking assumptions used by the applicable public_utility commission in establishing or approving rates during the first ratemaking proceeding in which the nuclear power plant was included in the taxpayer's rate base sec_1_468a-3 of the regulations provides that the internal_revenue_service shall not provide a taxpayer with a schedule of ruling amounts for any nuclear decommissioning fund unless the public_utility commission that establishes or approves the rates for electric energy generated by the plant has determined the amount of decommissioning costs to be included in the taxpayer's cost of service for ratemaking purposes and has disclosed the after-tax rate of return and any other assumptions and plr-118146-03 determinations used in establishing or approving the amount sections a and c of the energy policy act of act eliminated for taxable years beginning after date the investment restrictions contained in sec_468a sections b and c of the act revised sec_468a by lowering the tax_rate applicable to a nuclear decommissioning fund for taxable years beginning after date section dollar_figure of revproc_92_54 1992_2_cb_393 provides that if a public_utility commission places a nuclear power plant in a taxpayer’s rate base within a reasonable period of time after the date the plant begins sustained and substantial generation of electricity for sale to customers the date of inclusion in rate base will be deemed to be the commercial operations date a reasonable period of time is one that ends on the last day of the second calendar_year after the calendar_year in which the nuclear power plant begins sustained and substantial generation of electricity for sale to customers we have examined the representations and the data submitted by the taxpayer in relation to the requirements set forth in the code and the regulations based solely upon these representations of the facts we reach the following conclusions for the period covered by this schedule of ruling amounts taxpayer has a qualifying interest in the plant and is therefore an eligible_taxpayer under sec_1_468a-1 of the regulations commission a commission b commission c and commission d have determined the decommissioning costs to be included in taxpayer's cost of service for ratemaking purposes as required by sec_1_468a-3 of the regulations taxpayer has proposed a schedule of ruling amounts which meets the requirements of sec_1_468a-3 and of the regulations the annual payments specified in the proposed schedule of ruling amounts are based on the reasonable assumptions and determinations used by the commissions and will result in a projected fund balance at the end of the funding_period equal to or less than the amount of decommissioning costs allocable to the fund taxpayer has determined under sec_1_468a-3 of the regulations that the qualifying percentage is w the maximum amount of cash payments made or deemed made to the fund during any_tax year is restricted to the lesser amount of the cost of service amount applicable to the fund or the ruling_amount applicable to the fund as set forth under sec_1_468a-2 of the regulations plr-118146-03 based solely on the determinations above we conclude that the taxpayer's proposed schedule of ruling amounts in regard to the commissions satisfies the requirements of sec_468a of the code accordingly the schedule of ruling amounts requested by the taxpayer under sec_468a is approved as follows approved schedule of ruling amounts taxable years through commissions a b c and d year comm a comm b comm c comm d total approval of the schedule of ruling amounts is contingent on there being no change in the facts and circumstances known or assumed at the time the current ruling is issued the approved schedule of ruling amounts is being limited to a five-year period as a result of the statutory changes made by the act the elimination of the investment restrictions and the reduction of the tax_rate applicable to income earned by the fund may result in a greater after-tax of return than was estimated prior to the enactment of the act by the commissions this increased after-tax rate of return would over the life of the fund result in a balance in the fund on the last day of the funding_period that would exceed the amount of decommissioning costs allocable to the fund in order to prevent the excess accumulation in the fund this schedule of ruling amounts is limited to a five year period approval of a revised schedule of ruling amounts may be approved after a determination by the applicable public_utility commissions of an after- tax_rate of return that accounts for the reduced_tax_rate and unrestricted investments except as specifically determined above no opinion is expressed or implied concerning the federal_income_tax consequences of the transaction described above the approved schedule of ruling amounts is relevant only to those payments made to the fund payments allocable to any funds other than the fund cannot qualify for purposes of the deduction under the provisions of sec_468a of the code payments made to such fund can qualify only to the extent that they do not exceed the lesser_of the decommissioning costs applicable to such fund or the ruling amounts applicable to this fund in the tax_year this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides it may not be used or cited as precedent in accordance with the power_of_attorney we are sending a copy of this letter to the taxpayer’s authorized representative we are also sending a copy of this letter_ruling to the industry director plr-118146-03 natural_resources and construction lm nrc pursuant to sec_1_468a-7 of the regulations a copy of this letter must be attached with the required election statement to the taxpayer's federal_income_tax return for each tax_year in which the taxpayer claims a deduction for payments made to the fund sincerely yours peter c friedman senior technician reviewer branch office of associate chief_counsel passthroughs and special industries


steven m petersen and pauline petersen petitioners v commissioner of internal revenue respondent john e johnstun and larue a johnstun petitioners v commissioner of internal revenue respondent docket nos filed date sec_267 defers deductions for expenses paid_by a taxpayer to a related_person until the payments are includ- ible in the related person’s gross_income sec_267 defines the relationships that bring this statute into play sec_267 provides that for purposes of applying united_states tax_court reports subsec a an s_corporation and any person who owns directly or indirectly any of the stock of such corporation shall be treated as persons specified in a paragraph of sub- section b sec_267 thus deems s_corporations and their shareholders to be related_persons regardless of how much or how little stock each shareholder individually owns sec_267 which provides rules for constructive owner- ship of stock provides that stock owned by a_trust is deemed constructively owned by the beneficiaries of the trust ps were shareholders of a closely held s_corporation s formed an esop for the benefit of its employees and transferred s stock and cash to the related esop trust during and s accrued payroll expenses for employees who partici- pated in the esop but a portion of these expenses remained unpaid at the end of each year s claimed deductions and ps as shareholders of s claimed flowthrough deductions for these accrued but unpaid payroll expenses r disallowed these deductions on the ground that the esop participants were beneficiaries of a_trust that these employees were deemed by sec_267 to be constructive owners of the s stock held by the trust and hence that the esop participants and s were related_persons for purposes of sec_267 and a held the entity holding the s stock for the benefit of the esop participants is a_trust within the meaning of sec_267 sec_267 thus deems the stock held by the trust to be owned by the trust’s beneficiaries viz the s employees who participated in the esop held further s and the esop-participating employees are deemed by sec_267 to be related_persons for pur- poses of sec_267 sec_267 accordingly operates to defer s’ deductions for the accrued but unpaid payroll expenses to the year in which such pay was received by the esop employees and includible in their gross_income michael c walch for petitioners rebekah a myers for respondent opinion lauber judge with respect to petitioners steven petersen and pauline petersen the internal_revenue_service irs or respondent determined for their and tax- petersen v commissioner able years the following federal_income_tax deficiency over- payment and accuracy-related_penalty year deficiency overpayment dollar_figure big_number penalty sec_6662 dollar_figure with respect to petitioners john johnstun and larue johnstun the irs determined for their and tax- able years the following federal_income_tax deficiency over- payment and accuracy-related_penalty year deficiency overpayment penalty sec_6662 dollar_figure dollar_figure -0- these cases present a question of statutory interpretation involving sec_267 which disallows or defers deductions for certain losses_and_expenses incurred in transactions between related_persons sec_267 provides that if a taxpayer makes a deductible payment to a related_person as specified in subsection b that payment is not allowable as a deduction to the payor until it is includible in the gross_income of the payee the question presented is whether this section applies to defer certain deductions accrued by petersen inc petersen or the company an s_corporation of which petitioners were the founders and original share- holders for each couple the overpayment that the irs determined for re- sults from applying to the different facts of the legal theory that the irs adopted in determining the deficiency for as explained more fully below we believe that legal theory to be correct and we will accord- ingly sustain the deficiencies that the irs determined for we do not appear to have jurisdiction to determine an overpayment for because the irs did not determine a deficiency for that year see sec_6214 sec_6512 kupersmit v commissioner tcmemo_2014_129 however absent any statute of limitation concerns we assume that the irs will credit each couple with the overpayment that the notice_of_deficiency deter- mined for all statutory references are to the internal_revenue_code code in ef- fect for the relevant years and all rule references are to the tax_court rules_of_practice and procedure we round all monetary amounts to the nearest dollar united_states tax_court reports petersen uses the accrual_method of accounting for federal_income_tax purposes in and petersen accrued expenses for wages vacation pay and related payroll items collectively accrued payroll expenses on behalf of its employees some of these accrued payroll expenses were not expected to be paid and were not in fact paid until the year following the year in which petersen made the accruals if petersen and its employees were related_persons sec_267 operated to defer the corporate deduction for these accrued but unpaid expenses-and the resulting flowthrough deductions to petitioners as petersen’s shareholders-until the year the expenses were paid and the amounts were includible in the employees’ income sec_267 provides special rules for pass-thru enti- ties including s_corporations in the case of any amount_paid or incurred by an s_corporation the corporation and any person who owns directly or indirectly any of the stock of such corporation are deemed to be related_persons for purposes of sec_267 see sec_267 sec_267 which sets forth rules for constructive_ownership of stock provides that s tock owned directly or indirectly by or for a_trust shall be considered as being owned proportionately by its beneficiaries during and petersen maintained an employee_stock_ownership_plan esop for its participating employees during each year some or all of the petersen stock was owned by the related esop trust respondent contends that the esop trust is a_trust within the meaning of sec_267 with the consequence that the trust beneficiaries- viz the petersen employees who were esop partici- pants-are deemed to have owned their proportionate shares of the petersen stock held by the trust in short if petersen’s employees were the beneficiaries of a_trust that owned petersen stock as respondent contends they were deemed related to petersen for purposes of sec_267 that would make sec_267 applicable to require that the company’s deductions for accrued but unpaid payroll expenses be deferred until the pay was received by the employees and thus includible in their gross_income we agree with respondent’s construction of the statute and will accordingly render a decision in his favor with respect to the deficiencies but we rule for petitioners on the penalties petersen v commissioner background these cases were submitted fully stipulated under rule there is no dispute as to the following facts which are drawn from the parties’ stipulations of facts and the attached exhibits petitioners resided in utah when they petitioned this court larue johnstun is a party solely by virtue of having filed joint federal_income_tax returns with her hus- band petersen was incorporated in utah in and filed a sub- chapter s election in in date the company formed an esop for the benefit of its employees and trans- ferred cash and petersen stock to the related esop trust during and the first nine months of the esop trust owned of the company mr and mrs petersen collectively owned and mr johnstun owned on date the esop trust acquired petitioners’ shares and became the company’s sole shareholder petersen generally paid its employees every second friday at year-end and petersen had accrued but unpaid wage expenses of dollar_figure and dollar_figure respectively these amounts were paid to its employees by january of the following year approximately of these amounts was attributable to employees who participated in the esop petersen’s employees accrued vacation time as they worked they were required to use this accrued vacation time during the year accrued or during the next calendar_year at year-end and petersen had accrued but unpaid vacation pay expenses of dollar_figure and dollar_figure respectively these amounts were paid to its employees by december of the following year roughly of these amounts was attributable to employees who participated in the esop petersen filed timely forms 1120s u s income_tax return for an s_corporation for and on these returns it claimed deductions for among other things the accrued but unpaid payroll expenses described above peti- at year-end and petersen had also accrued but not yet paid to its employees other expenses of dollar_figure and dollar_figure respectively the record does not disclose the nature of these expenses or when they were ultimately paid united_states tax_court reports tioners on their individual returns claimed flowthrough deductions equal to their pro_rata shares of these accrued but unpaid expenses the irs selected petersen’s and forms 1120s for examination invoking sec_267 the irs disallowed deductions for the accrued but unpaid expenses to the extent they were attributable to employees who participated in the esop the irs then performed a follow-on examination of petitioners’ individual returns for the irs disallowed flowthrough deductions aggregating dollar_figure for mr and mrs petersen and dollar_figure for mr johnstun for the irs allowed additional flowthrough deductions aggregating dollar_figure for mr and mrs petersen and dollar_figure for mr johnstun attributable to certain expenses that had been accrued in and paid in these allowances gen- erated overpayments for as a result of these deter- minations and computational adjustments to petitioners’ itemized_deductions for the irs determined the defi- ciencies and overpayments set forth above see supra p the irs also determined accuracy-related_penalties for on date we consolidated these cases for pur- poses of trial briefing and opinion on date we granted the parties’ motion for leave to submit the cases for decision without trial under rule on date we asked the parties to file a supplemental stipulation of facts and attach thereto copies of the esop’s trust instrument and other organizational documents they timely complied with this request i accrued expenses discussion deductions are a matter of legislative grace and the bur- den is on the taxpayer to prove entitlement to claimed deduc- tions 503_us_79 292_us_435 petitioners do not contend that the burden_of_proof should shift to respondent under sec_7491 in any event with respect to the deficiencies only legal issues remain so the burden_of_proof is irrelevant see eg 115_tc_523 petersen v commissioner generally an accrual basis taxpayer may deduct ordinary and necessary business_expenses in the year when all events have occurred that establish the fact of the liability the amount of the liability is set and economic_performance has occurred with respect to the liability sec_461 sec_1_446-1 income_tax regs when such expenses are owed to a related cash_basis taxpayer however sec_267 provides that the payor may deduct the expenses only for the taxable_year for which the amounts are includ- ible in the payee’s gross_income see 103_tc_656 rev’d and remanded on other grounds 87_f3d_99 3d cir petersen was an accrual basis taxpayer during and and the esop participants were cash_basis taxpayers the parties agree that the accrued payroll expenses were ordinary and necessary to the company’s business and that the requirements of sec_461 have been met the sole issue is whether the company and the esop participants were related_persons under sec_267 a threshold arguments petitioners advance three threshold arguments that we will address briefly first they contend that sec_318 not sec_267 provides the applicable rules for constructive_ownership of stock sec_318 is one of several code provi- sions that set forth rules for constructive_ownership of stock by its terms however it applies only f or purposes of those provisions of this subchapter to which the rules contained in this section are expressly made applicable sec_318 sec_318 does not apply here for two reasons first sec_318 is in subchapter_c whereas sec_267 is in sub- chapter b of title_26 subtitle a chapter thus sec_267 is not a provision of this subchapter within the meaning of sec_318 second the rules of sec_318 are not expressly made applicable by sec_267 quite the con- trary sec_267 provides its own rules for constructive_ownership of stock demonstrating congress’ intent that petitioners wish sec_318 to apply because its attribution rule for trusts excludes tax-exempt employees’ trusts see sec_318 stock owned directly or indirectly by or for a_trust other than an em- ployees’ trust described in sec_401 which is exempt from tax under sec_501 shall be considered as owned by its beneficiaries united_states tax_court reports these latter rules should apply cf in re s beach sec 606_f3d_366 7th cir posner j ruling that the attribution_rules of sec_318 don’t apply to sec_269 for sec_318 applies only when expressly made applicable and it hasn’t been made expressly applicable to sec_269 which anyway is not in subchapter_c petitioners cite 329_f3d_751 9th cir to support a contrary conclusion the question there was whether payments by a corporation to redeem stock held by an esop trust were deductible as dividends_paid under sec_404 the answer depended on whether the redemption was not essentially_equivalent_to_a_dividend in which case it would be treated under sec_302 as an exchange rather than a dividend applying the constructive_ownership rules of sec_318 the court_of_appeals for the ninth circuit concluded that the esop trust should be treated as the owner of the redeemed stock for pur- poses of sec_302 that the redemptions caused no meaningful reduction of its ownership_interest and hence that the redemptions constituted dividends as the taxpayer contended petitioners err in relying on boise cascade the operative code provision there was sec_302 sec_302 is part of subchapter_c and the rules of sec_318 are expressly made applicable to sec_302 see sec_302 s ection a shall apply in determining the ownership of stock for purposes of this section the operative code provision here is sec_267 as noted previously sec_267 is not part of subchapter_c and the rules of sec_318 are not expressly or otherwise made applicable to it petitioners next contend that because petersen’s gross_receipts exceed dollar_figure million annually sec_448 requires that the company be an accrual basis taxpayer this contention is incorrect sec_448 applies only to c corporations tax_shelters and partnerships with a c_corporation as a partner see sec_448 in any event sec_267 does not deny petersen use of the accrual_method generally it simply defers deductions for a limited universe of expenses payable to related cash_basis parties third petitioners urge that respondent’s position violates generally_accepted_accounting_principles gaap by denying a current deduction for properly accrued payroll costs as has petersen v commissioner often been noted however tax_accounting differs in many respects from gaap financial_accounting see eg 476_us_593 439_us_522 dis- allowing writedown of excess inventory for tax purposes even though it conformed to gaap 97_tc_120 especially is that so where as here a code provision explicitly requires a treat- ment that differs from gaap petersen has no greater claim than any other accrual basis taxpayer to exemption from the operation of sec_267 b statutory background sec_267 is designed to prevent the use of the differing methods of reporting income for federal_income_tax purposes in order to obtain artificial deductions for interest and busi- ness expenses metzger tr v commissioner 76_tc_42 aff ’d 693_f2d_459 5th cir originally enacted in the statute has been amended many times most substantially in deficit_reduction_act_of_1984 pub_l_no sec_174 stat pincite sec_267 is remedial requiring related_persons to use the same accounting_method with respect to transactions between themselves in order to prevent the allowance of a deduction without the corresponding inclusion in income h_r rept no part pincite u s c c a n sec_267 generally defines the relationships that bring the statute into play before transactions between s_corporations and their shareholders were exempt from its coverage unless the shareholder owned constructively or otherwise more than of the corporation’s stock see sec_267 congress revised that treatment in by enacting sec_267 act of date pub_l_no sec_2 stat pincite sec_267 pro- vides that for purposes of applying subsection a an s_corporation and any person who owns directly or indirectly any of the stock of such corporation shall be treated as per- sons specified in a paragraph of subsection b sec_267 thus deems s_corporations and their shareholders to united_states tax_court reports be related_persons regardless of how much or how little stock each shareholder individually owns sec_267 provides constructive_ownership rules f or purposes of determining in applying subsection b the ownership of stock as noted previously subsection e provides that an s_corporation and its shareholders shall be treated as persons specified in a paragraph of subsection b see sec_1_267_a_-2t q a-4 and -5 temporary income_tax regs fed reg date referring to sec_267 as modified by sec_267 thus the constructive_ownership rules of subsection c apply in deter- mining the ownership of petersen’s stock as relevant here sec_267 provides that s tock owned directly or indirectly by or for a corporation partner- ship estate_or_trust shall be considered as being owned proportionately by or for its shareholders partners or bene- ficiaries thus if the esop participants by virtue of sub- section c constructively own petersen stock as beneficiaries of a_trust subsection e deems the company and those employees-no matter how small their percentage owner- ship-to be related_persons for purposes of subsections a and b we turn now to that legal question whether the petersen stock in question was owned within the meaning of sec_267 by a_trust of which the esop participants were beneficiaries c analysis our first step in interpreting a statute is to determine whether the language at issue has a plain and unambig- uous meaning 519_us_337 in determining the plain meaning of the statute the before it was amended by the deficit_reduction_act_of_1984 pub_l_no sec_174 stat pincite sec_267 f allowed an s_corporation to deduct accrued amounts before payout if the payee share- holder held less than a interest in the corporation under the corporation shareholder relationship defined in sec_267 the only esop participants deemed related to the company would be mr and mrs petersen who collectively owned of the pe- tersen stock until date however sec_267 supple- ments sec_267 in the case of s_corporations by providing that any person who owns constructively or directly any of the stock of an s cor- poration shall be treated as a person specified in a paragraph of sub- section b petersen v commissioner court must look to the particular statutory language at issue as well as the language and design of the statute as a whole 486_us_281 we ordinarily give the words congress used their ordinary meaning unless doing so would produce absurd or futile results 310_us_534 see 84_tc_756 if a statute is clear on its face we require unequivocal evidence of legislative intent before construing the statute in a manner that over- rides the plain meaning of the words used therein 96_tc_895 the term trust is not defined in sec_267 or else- where in sec_267 subsection c was included in the original version of the statute as enacted in internal_revenue_code of ch sec_267 sec_68a stat pincite since then sec_267 has been amended times but none of these amendments changed the wording of subsection c or provided a definition of trust the legislative his- tory is likewise silent concerning the universe of entities that congress intended this term to encompass the word trust appears in sec_267 as part of a series that also includes corporation partnership and estate each of these words appears to be used in a broad and generic sense without limitation or qualification in this respect sec_267 differs in a critical way from sec_318 which prescribes constructive_ownership rules for certain provisions of subchapter_c sec_318 mandates attribution to beneficiaries of stock owned by or for a_trust other than an employees’ trust described in sec_401 which is exempt from tax under sec_501 this provi- sion shows that congress knew how to limit the scope of the term trust when it intended to do so it expressed no such intent in sec_267 or in the legislative_history accom- panying the statute’s enactment and amendment in determining whether the petersen stock was owned by a_trust as that term is ordinarily understood we begin by examining the documents that created the esop when petersen adopted the esop in two documents were drafted a plan agreement and a_trust instrument the plan agreement states that the esop is intended to be an employee_stock_ownership_plan within the meaning of sec_148 united_states tax_court reports e sec_1 provides that amounts contributed to the esop are held by a trustee who acts in accordance with the terms of a_trust instrument that section further provides that t he trust implements and forms a part of the plan and that t he provisions of and benefits under the plan are subject_to the terms and provisions of the trust the plan agreement specifies the esop participants’ rights and the trustee’s duties with regard to holding investing and distributing the plan’s assets subject_to the direction of the plan_administrator section requires the plan adminis- trator as a fiduciary to discharge his or her duties with respect to the plan and the trust solely in the interests of participants section provides that an individual_account shall be created in the name of each participant and sec_1 provides that the amounts in these accounts are held and invested by the trustee the trust instrument is titled petersen inc employee_stock_ownership_trust article specifies how the trust assets-chiefly petersen stock-are to be managed and con- trolled it states that the trustee is required to manage and account for all contributions that petersen makes under the plan as one trust fund receive and hold all con- tributions paid to it under the plan retain sufficient cash as may be required for the proper administration of the trust make distributions from the trust fund vote any stocks held in the trust furnish to the company and the administrator an annual written account and invest and reinvest the assets of the trust fund upon direction from the administrator the trust agreement requires the trustee to discharge these duties solely in the interest of the plan’s participants with the care skill pru- dence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity would use article of the trust instrument provides that interests under the plan are not subject_to the claims of petersen’s creditors and may not be voluntarily or involuntarily assigned article captioned no reversion to company provides that no part of the corpus or income of the trust fund shall revert to petersen provided that petersen’s ini- petersen v commissioner tial contribution may be returned to it if the esop should initially fail to qualify under sec_401 these provisions show that the entity holding the petersen stock for the benefit of the esop participants was a_trust in the ordinary sense of that word the regulations describe a_trust as an arrangement whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries sec_301_7701-4 proced admin regs generally speaking an arrangement will be treated as a_trust if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries ibid the arrangement involved here closely resembles an ordi- nary trust whereby a settlor here the company establishes a_trust for the benefit of specified beneficiaries the esop participants contributes property to the trust petersen stock and cash and designates a trustee to hold the prop- erty for the beneficiaries and act in their best interest the esop trust easily qualifies as a_trust under the regulatory definition and the common_law definitions appearing in the case law consistently with the plan agreement and the trust instrument the summary_plan_description furnished to the esop participants states that under the esop_stock representing your beneficial_ownership in the company will be held on your behalf in a special trust called an em- ployee stock ownership trust the trust is part of the esop this docu- ment lends further support to the conclusion that petersen intended to es- tablish and actually did establish a_trust to hold its stock for the benefit of its employees in contrast a business_trust -viz an entity created to allow a bene- ficiary to carry on an income-producing activity that would otherwise have been conducted through a corporation or partnership-is not treated as a_trust for federal_income_tax purposes because there are no arrangements to protect or conserve property for beneficiaries sec_301_7701-4 proced admin regs see eg cent states se and sw areas pension fund v 472_us_559 holding that a_trust is generally de- noted by the vesting of duties in a trustee including a duty to preserve and maintain trust assets 636_f3d_781 6th cir citing restatement third of trusts for common_law definition of a_trust 278_f2d_127 9th cir continued united_states tax_court reports indeed if the plan assets were not held by a_trust the esop could not qualify under erisa see u s c sec_1103 a ll assets of an employee_benefit_plan shall be held in trust by one or more trustees sec_401 in conjunction with sec_501 supplies the tax exemption for all qualified_plans including esops it provides that a_trust created or organized in the united_states and forming part of a stock_bonus_plan of an employer shall constitute a qualified_trust if among other things contribu- tions are made to the trust for the benefit of plan partici- pants sec_4975 defines a plan to include a_trust described in sec_401 which forms a part of a plan sec_4975 defines an esop as a defined con- tribution plan which is a stock_bonus_plan that is qualified under sec_401 and meets the require- ments of sec_409 and sec_404 allows the employer a deduction subject_to specified dollar limits if the contributions are paid into a stock bonus or profit- sharing trust in short the statutory scheme upon which the esop arrangement rests presumes that the stock held for the benefit of the esop participants will be owned by a_trust petitioners advance in support of a contrary conclusion a variety of arguments which may be divided into two groups the thrust of the first group is that the esop documents do not show that petersen intended to create a_trust petitioners contend that petersen’s right to terminate the plan gives it a reversionary_interest that is inconsistent with the premise of a_trust namely that the trust assets are held for its beneficiaries petitioners are correct that petersen in specified circumstances can terminate the plan but their argument ignores section of the trust instrument which requires in the event of plan termination that the trust fund be liquidated and distributed to the esop participants subject_to a reserve for paying the trustee’s expenses indeed if petersen held a reversionary_interest in the trust holding that a relationship is generally classified as a_trust if it is clothed with the characteristics of a_trust 54_f2d_848 1st cir rev’g in part 21_bta_1001 108_tc_448 aff ’d in part rev’d in part on other grounds 184_f3d_786 8th cir george gleason bogert et al bogert’s trusts and trustees sec_582 petersen v commissioner assets the esop could not qualify for tax exemption see sec_1_401-2 income_tax regs a_trust is not quali- fied unless under the trust instrument it is impossible for any part of the trust corpus or income to be used for or diverted to purposes other than for the exclusive benefit of such employees and their beneficiaries petitioners contend that the plan agreement takes prece- dence over the trust instrument because the trustee will typi- cally act on instructions from the plan_administrator while the latter statement may be true we do not see how it affects the proper characterization of the entity owning the assets the trust instrument explicitly requires the trustee to hold and protect the assets for the beneficiaries and to discharge his fiduciary duties for their exclusive benefit the fact that the trustee accepts instructions from the plan_administrator regarding investment decisions and other matters does not alter his status as a trustee or cause the trust to be some- thing other than a_trust the plan agreement states that t o the extent not superseded by the laws of the united_states the laws of utah shall be controlling in all matters relating to the plan petitioners contend that utah law excludes from the defini- tion of trust a plan established for the primary purpose of providing employee_benefits and that utah law should con- trol this question but it is well settled that the interpreta- tion of terms employed in the internal_revenue_code is gov- erned by federal not state law see eg 327_us_280 783_f2d_966 10th cir 709_f2d_31 9th cir aff ’g tcmemo_1981_659 42_tcm_1662 the central question pre- sented by these cases-the meaning and scope of the term trust as used in sec_267 -is a question of federal_law because it involves the proper interpretation of a federal statute on this point utah law is superseded by the laws of the united_states the thrust of petitioners’ second group of arguments is that an esop as a matter of law cannot be a_trust within the meaning of sec_267 these arguments share a common flaw they fail to appreciate the distinction between the plan agreement which created the esop and the trust united_states tax_court reports instrument which created the trust that holds the plan assets we will address these arguments briefly petitioners contend that an esop is not a_trust and that the petersen esop has participants rather than bene- ficiaries of the sort covered by sec_267 this argu- ment fails because the trust that holds the assets is distinct from the plan that created the esop see sec_401 refer- ring to a_trust forming part of a stock_bonus_plan sec_401 referring to a_trust which is part of an employee_stock_ownership_plan sec_4975 defining an esop as a stock_bonus_plan which is qualified under sec_401 this is not an either or dilemma petersen’s employees are simultaneously partici- pants in the plan and beneficiaries of the trust petitioners contend that esops are subject only to the provisions of subchapter_d governing retirement and other qualified_plans and hence are immune from the operation of subchapter_b governing computation of taxable_income which includes sec_267 this is clearly incorrect because the provisions of subchapter_b apply to countless entities and relationships in the code regardless of which subchapter addresses their taxation in particular the constructive_ownership rules of sec_267 for example explicitly apply to partnerships whose taxation is governed by sub- chapter k and estates whose taxation is governed by sub- chapter j in any event respondent seeks to apply sec_267 not to compute the esop’s taxable_income but to com- pute petersen’s allowable deductions that flow through to petitioners petitioners and petersen are clearly subject_to subchapter_b petitioners note that esops did not exist under common_law and contend that the term trust as used in sec_267 should be limited to common_law trusts subject_to subchapter_j governing the taxation of estates trusts and their beneficiaries the fact that esops are creatures of statute rather than common_law is irrelevant the question at hand is whether an inter_vivos_trust created in connection with an esop is a_trust within the meaning of the statute the regulations define a_trust as an arrangement cre- ated either by will or by inter_vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries sec petersen v commissioner a proced admin regs the esop trust meets that definition and petitioners have offered no persua- sive reason for giving the term trust as it appears in sec_267 a more restrictive meaning had congress wished to limit the statute’s application to trusts and bene- ficiaries whose taxation is governed by subchapter_j it could easily have drafted sec_267 to say so cf sec_318 prescribing attribution to beneficiaries of stock owned by or for a_trust other than an employees’ trust described in sec_401 which is exempt from tax under sec_501 finally petitioners appear to contend that the esop trust because it is integrated with and supposedly subser- vient to the plan has no separate existence for federal tax purposes and is thus immune from the coverage of sec_267 this argument misapprehends the statutory structure on which the esop’s tax exemption rests although the esop trust was formed as part of the plan it is and must be a legally distinct entity created by a distinct trust instrument see eg sec_401 referring to a_trust which is part of an employee_stock_ownership_plan sec_404 allowing the employer a deduction if the con- tributions are paid into a stock_bonus_or_profit-sharing_trust u s c sec_1103 a ll assets of an employee_benefit_plan shall be held in trust by one or more trustees at the end of the day petitioners’ core complaint is that congress did not exclude tax-exempt employee trusts from the constructive_ownership rules of sec_267 as it explicitly did from the constructive_ownership rules of sec_318 conceivably this was a drafting oversight when con- gress in enacted sec_267 to address the treatment of s_corporations and their shareholders esops were not eligible to be s_corporation shareholders see small_business job protection act of pub_l_no sec stat pincite6 enacting sec_1361 with an effective date of date see generally austin v commissioner tcmemo_2017_69 in any event we are bound by the law that congress enacted we are not at lib- erty to revise sec_267 to craft an exemption that con- gress did not see fit to create see metzger trust t c pincite courts do not have the power to repeal or amend the enactments of the legislature united_states tax_court reports in sum we conclude that the petersen inc employee_stock_ownership_trust is a_trust within the meaning of sec_267 congress did not limit the universe of trusts to which that provision applies it could easily have drafted sec_267 as it drafted sec_318 to exclude tax-exempt employee trusts but it did not do so the trust formed in connection with the petersen esop was created by a_trust instrument it has all the features of a_trust in the ordinary sense of the word and it was required to be a_trust under the statutory structure on which the esop’s tax exemption rests sec_267 thus deems the petersen stock held by the trust to be owned by the trust’s beneficiaries viz the petersen employees who participated in the esop as a result the esop participants and the company are deemed related_persons for purposes of sec_267 see sec_267 sec_267 accordingly operates to defer petersen’s deductions for the accrued but unpaid payroll expenses to the year in which such pay was received by the esop participants and includible in their gross_income ii penalties the code imposes a penalty on the portion of any underpayment_of_tax attributable to n egligence or dis- regard of rules and regulations or a ny substantial under- statement of income_tax sec_6662 and b and negligence includes any failure to make a reasonable attempt to comply with the internal revenue laws sec_6662 an understatement of income_tax is substantial if it exceeds the greater of dollar_figure or of the tax required to be shown on the return sec_6662 under sec_7491 respondent bears the burden of production with respect to the liability of an individual for any penalty see 116_tc_438 no penalty is imposed with respect to any portion of an understatement if the taxpayer acted with reasonable_cause and in good_faith with respect thereto the taxpayer bears the burden of proving reasonable_cause and good_faith id pincite the determination of whether a taxpayer acted with reasonable_cause and in good_faith is made on a case- by-case basis taking into account all the facts and cir- petersen v commissioner cumstances the most important of which is the extent of the taxpayer’s effort to assess his proper tax_liability for the year sec_1_6664-4 income_tax regs circumstances that indicate reasonable_cause and good_faith include an honest misunderstanding of law that is reasonable in light of all the surrounding facts id we conclude that petitioners made a good-faith effort to assess their tax_liabilities properly and hence are not liable for any accuracy-related_penalty the application of sec_267 to employers and esop participants is a question of first impression in this court we have discovered no prior case addressing this question and respondent has pointed us to none we have previously declined to impose a penalty where it appeared that the issue was one not previously considered by the court and the statutory language was not entirely clear see 103_tc_711 because petitioners acted reasonably and in good_faith with respect to the understatements for the years at issue we find that they are not liable for penalties under sec_6662 to reflect the foregoing decisions will be entered for respondent with respect to the deficiencies and for peti- tioners with respect to the penalties f


internal_revenue_service number release date index number --------------------- -------------------------- ----------------------------------------------------- -------------------------------------- ------------------------- ---------------------------- in re --------------------------------------- ------------------------------------- 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 corp b02 plr-144060-13 date date parent -------------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------- bank -------------------------------------------------------------------------- --------------------------------------------------------------------- --------------------------------------- agency date date date date date x agency tax professional ----------------------------------------------------- --------------------------- ------------------- --------------------------- ---------------------------- ------------------- -- ---------------------------- ------------------------------------------------------------------------ ------------------------------------------------------------------------ ------------------------------------------- plr-144060-13 dear ------------ this letter responds to a letter dated date submitted by agency as agent of the consolidated_group of which parent is the common parent the parent group requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election in particular agency is requesting an extension of time for the parent group to elect an extended carryback period the election for a consolidated_net_operating_loss cnol the material information submitted for consideration is summarized below parent is the common parent of the parent group of which bank is a member on date bank was closed and agency was appointed receiver on date pursuant to sec_301_6402-7 agency was authorized by the internal_revenue_service to act as an agent of the carryback_year group the loss_year group or any other group of which bank is a member for any matter pertaining to the determination of the refund or tentative_carryback_adjustment for the carryback and loss years of the parent group the parent group incurred a cnol in the taxable_year ending date the year cnol agency on behalf of the parent group seeks to carry back the year cnol x years to the parent group’s taxable_year ending on date under sec_172 of the internal_revenue_code the parent group was required to file the election in order to carry back the year cnol to its taxable_year ending on date and to obtain the benefit of sec_56 the election was due on date 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_9100-3 for an extension of time to file the election agency has represented that the parent group is not seeking to alter a return position for which an accuracy related penalty has been or could be imposed under sec_6662 sec_172 generally permits a taxpayer to carry back a net_operating_loss nol to each of the taxable years preceding the taxable_year of the nol sec_172 permits a taxpayer to elect to carry back an applicable net_operating_loss applicable nol to each of the or taxable years preceding the taxable_year of the applicable nol in lieu of the 2-year period provided by sec_172 sec_172 provides that an applicable nol is the taxpayer’s nol for a taxable_year ending after date and beginning before date plr-144060-13 sec_172 provides that the election under sec_172 shall be made by the due_date including extension of time for filing the return for the taxpayer’s last taxable_year beginning in the election is irrevocable and in general may be made only with respect to one taxable_year sec_1502 provides that the secretary shall prescribe such regulations as he may deem necessary in order that the tax_liability of any affiliated_group_of_corporations making a consolidated_return and of each corporation in the group both during and after the period of affiliation may be returned determined computed assessed collected and adjusted in such manner as clearly to reflect the income_tax_liability and the various factors necessary for the determination of such liability and in order to prevent avoidance of such tax_liability in carrying out the preceding sentence the secretary may prescribe rules that are different from the provisions of chapter that would apply if such corporations filed separate returns sec_1_1502-21 of the income_tax regulations provides that losses taken into account in determining a cnol may be carried to other taxable years whether consolidated or separate only under paragraph b of sec_1_1502-21 sec_1_1502-21 provides that nol carryovers and carrybacks to a taxable_year are determined under the principles of sec_172 and sec_1_1502-21 sec_1_1502-21t provides that a consolidated_group may elect an extended carryback period pursuant to sec_172 with regard to a cnol arising in a taxable_year ending after date and beginning before date revproc_2009_52 2009_49_irb_744 provides when and how a taxpayer may make an election under sec_172 sec_4 of revproc_2009_52 provides that the common parent of a consolidated_group makes the election for the group sec_4 and of revproc_2009_52 permit the election to be made for consolidated taxpayers by attaching a statement to the original or amended consolidated_return for the taxable_year of the applicable cnol by attaching a statement to the taxpayer’s amended consolidated_return applying the applicable cnol to the carryback_year or by attaching a statement to a claim for a tentative_carryback_adjustment on form_1139 corporation application_for tentative refund sec_4 b and b of revproc_2009_52 require the election regardless of the manner in which made to be filed no later than the due_date including extensions for filing the return for the taxpayer’s last taxable_year beginning in 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 than plr-144060-13 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 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government sec_301_9100-3 the election by a consolidated_group to extend the carryback period under sec_172 for a cnol is a regulatory election therefore the commissioner has discretionary authority under sec_301_9100-3 to grant an extension of time for the parent group to file the election provided the parent group establishes to the satisfaction of the commissioner that 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 information affidavits and representations submitted by agency and agency tax professional explain the circumstances that resulted in the failure to timely file a valid election the information establishes that the request for relief was filed before the failure to timely make the election was discovered by the internal_revenue_service see sec_301_9100-3 and v based on the facts and information submitted including the affidavits submitted and the representations made we conclude that the parent group acted reasonably and in good_faith that the requirements of sec_301_9100-1 and sec_301_9100-3 are satisfied and that granting relief will not prejudice the interests of the government accordingly provided that and to the extent that the parent group qualifies substantively to file the election we grant an extension of time under sec_301_9100-3 until sixty days from the date on this letter for the parent group to file the election this letter does not extend the period of time described in sec_6511 by which a taxpayer is required to file a claim for credit or refund of an overpayment_of_tax the parent group may file the election under sec_172 to carry back the year cnol to its taxable_year ending on date on form 1120x amended u s_corporation income_tax return for the taxable_year ending either date or date according to the procedures set forth in revproc_2009_52 a copy of this letter must be attached to the form 1120x if the parent group files form 1120x electronically the parent group may satisfy the requirement of attaching a copy of this letter by attaching a statement to the parent group’s amended_return that provides the date and control number plr-144060-13 of this letter_ruling plr-144060-13 the above extension of time is conditioned on the parent group’s tax_liability if any not being 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 we express no opinion as to the parent group’s tax_liability for the years involved a determination thereof will be made by the director’s office upon audit of the income_tax returns involved except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any item discussed or referenced in this letter in particular we express no opinion with respect to whether the parent group qualifies substantively to make the election in addition we express no opinion as to the tax effects or consequences of filing the election late under the provisions of any other section of the internal_revenue_code or 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 this letter for purposes of granting relief under sec_301_9100-3 we relied on certain statements and representations made under penalty of perjury by agency and agency tax professional the director however should verify all essential facts in addition notwithstanding that an extension is granted under sec_301_9100-3 to file the election any penalties and interest that would otherwise be applicable continue to apply this letter_ruling is directed only to the taxpayer 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 sincerely ken cohen acting chief branch office of associate chief_counsel corporate