EXTENSION GRANTED TO FILE ELECTION.

Index Numbers: 1502.20-00, 9100.28-00

[2] Parent is the common parent of a consolidated group. Parent files its Federal income tax return on 52-53 week basis, with a taxable year ending on the last Wednesday of January. Sub is a corporation that files its Federal income tax return on 52-53 week basis, with a taxable year ending the last Sunday of January. Both Parent and Sub use the accrual method of accounting. Until Date 1, Parent owned all of the common stock of Sub. Sub was therefore included in Parent's consolidated Federal income tax return. On Date 1, Parent sold all of the stock of Sub to Buyer. Buyer was not related to Parent. No election under section 338(h)(10) of the Internal Revenue Code (the "Code") was made with respect to the sale of Sub stock. It is represented that Parent recognized a loss on the sale, which Parent deducted on the return for its taxable year ended on Date 2, the taxable year in which the sale occurred. The amount Parent deducted was determined in accordance with section 1.1502-20(c). Parent filed its return for its taxable year ended Date 2 on Date 3. The Election was not attached to the return or otherwise filed.

[3] Section 1.1502-20(a)(1) provides that, as a general rule, no deduction is allowed for any loss recognized by a member of a consolidated group with respect to the disposition of stock of a subsidiary. Section 1.1502-20(a)(2) defines a disposition as any event in which gain or loss is recognized, in whole or in part. A sale is therefore a "disposition" within the meaning of section 1.1502-20(a)(2).

[4] Section 1.1502-20(c)(1) allows a deduction for a loss disallowed by section 1.1502-20(a)(1) to the extent the loss exceeds an amount determined by a specified formula. Section 1.1502-20(c)(3) provides that section 1.1502-20(c)(1) applies only if a statement of allowed loss is filed with the taxpayer's return for the year of disposition.

[5] Section 1.1502-77(a) provides that the common parent of a consolidated group shall, with certain exceptions not applicable here, be the sole agent for each subsidiary in the group. In this case, Parent, as the common parent of the consolidated group, was required by section 1.1502-20(c)(3) to make and attach the Election to its return for the year of disposition in order to deduct the amount, if any, of the loss not disallowed under section 1.1502-20(c)(1). On Date 3, Parent timely filed its return for its tax year ended on Date 2, the taxable year in which the sale occurred, and intended to file the Election. The Election was due on Date 3, as an attachment to the return. However, for various reasons the Election was not attached to the return or otherwise filed. On Date 4, which is after the due date for the year ended Date 2, it was discovered that the Election had not been filed. Subsequently, this request, under section 301.9100, for an extension of time to file the Election was submitted to the Service. The statute of limitations on assessments under section 6501 of the Code has not run for the Parent's or Sub's taxable year that included the sale, or any subsequent year or years affected thereby.

[6] Under section 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time to make a regulatory election, under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I, provided the taxpayer demonstrates to the satisfaction of the Commissioner that:

     (1) The taxpayer acted reasonably and in good faith, and

[8] Information, affidavits, and representations submitted by Parent, Tax Professional, and Company Official explain the circumstances that resulted in the failure to file the Election. The information also establishes that Company Official, a tax professional, was responsible for the Election and was aware of all relevant facts, and that Parent relied on Company Official to timely make the election.

[9] Based on the facts and information submitted, including the representations made, we conclude that Parent has shown that it acted reasonably and in good faith in failing to timely file the Election, that the other requirements of sections 301.9100-1 through 301.9100-3 have been satisfied, and that granting relief will not prejudice the interests of the government. Accordingly, an extension of time is granted under section 301.9100-1, until 30 days from the date of issuance of this letter, for Parent to file the Election with respect to the above described disposition of Sub stock.

[10] The above extension of time is conditioned on the taxpayers' (Parent's and Sub's) tax liability 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 filed (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 District Director's office upon audit or examination 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' liability is lower. Section 301.9100-3(c). In addition, the extension to file the Election is also conditioned on Parent's "sale" of its Sub stock to Buyer on Date 1 being an arm's length transaction for fair market value.

[11] We express no opinion as to: whether Parent's "sale" of its Sub stock to Buyer on Date 1 was at fair market value; whether Parent recognized a loss on the "sale" of its Sub stock, and if so, as to the amount thereof; or, if Parent recognized a loss on the "sale" of its Sub stock, as to the amount of the loss allowed as a deduction under section 1.1502-20(c)(1), if any.

[12] In addition, we express no opinion as to the tax treatment or consequences of filing the Election late under the provisions of any other section of the Code and regulations, or the tax treatment of any conditions existing at the time of, or effects resulting from, filing the Election late that are not specifically set forth in the above ruling. For purposes of granting relief under section 301.9100- 1 we relied on certain statements and representations made by the taxpayer and its employees. However, the District Director should verify all essential facts and computations. Moreover, notwithstanding that an extension is granted under section 301.9100-1 to file the Election, any penalties and interest that would otherwise be applicable shall still apply.

[13] Parent must file an amended return for its tax year ended on Date 2, and attach thereto the Election and information set forth in section 1.1502-20(c)(3). In addition, Parent should attach a copy of this letter to the amended return.

[14] This ruling letter is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

                                   Sincerely yours,