The Internal Revenue Service (IRS) has released a Private Letter Ruling (PLR-122641-22, 202326015) which allowed a common parent of an affiliated group of corporations to file a consolidated federal tax return election under Treasury Regulation (Treas. Reg.) section 1.1502-75(a)(1) even though the election was not timely made.
The benefit of a consolidated return is that it allows related corporations to file a single return versus a return for each entity as well as combining income and losses of each member of an affiliated group into a single income. Through filing multiple entities on a single consolidated return, a compliance and administrative burden is mitigated considering most corporations have multiple related entities.
The election is made by filing a timely consolidated return as of the filing deadline, including extensions, for the parent. When corporations fail to make a timely election, they must request an extension of time, provided under Treas. Reg. section 301.9100-3, which may be granted if the taxpayer provides satisfactory evidence to the IRS Commissioner that demonstrates the taxpayer acted reasonably and in good faith and granting the relief would not prejudice government interests.
In the PLR, the IRS granted the corporation an extension to file a consolidated return after receiving information, affidavits, and representations by the parent, company official, and the tax professional that demonstrated the taxpayer acted reasonably and in good faith because, as provided under section 301.9100-3, the request for relief was filed before the failure to make the election was discovered by the IRS.
Note 1: A PLR is a written response to a taxpayer's question(s) by the IRS national office located in Washington DC. In order to obtain a PLR, the taxpayer must pay a fee and provide the facts the taxpayer wishes the IRS to address. While a PLR can only be used by the taxpayer requesting it as precedent and other taxpayers cannot, they do help guide and advise tax practitioners on applicable rules and procedures through the eyes of the IRS. PLR procedures and user fees are published annually which are provided in the first revenue procedure of the calendar year. Revenue Procedure 2023-1 provides guidance on 2023 procedures and fees.