Net Operating Loss Deductions (Deductible v. Not Deductible)

ID:
Office:
UILC:
CCA_2011101316585422
---
6411.00-00, 172.00-00
Number: 201144028
Release Date: 11/4/2011
From: ---
Sent: Thursday, October 13, 2011 4:58:57 PM
To: ---
Cc: ---
Subject: Advice on the Form 1139 case
Thanks for your patience. I have now extensively discussed this case with all the subject matter experts in Counsel ------ and here are the key points.
1) The taxpayer's election under section 172(b)(1)(H) to elect a 5-year NOL carryback back in lieu of the normal 2-year period was not timely; it was required to have been made by the due date of the ---tax return, including extension (i.e., ------). See IRC § 172(b)(1)(H)(iii)(II). The election could be made on a Form 1120, a Form 1120, or a Form 1139. See Rev. Proc. 2009-52. In this case, the taxpayer attached the election to the Form 1139 filed in --- (and also the one received by the IRS in ---). Thus, the taxpayer does not have a valid election that would serve as the basis for carrying back the --- NOL to the --- tax year. Consequently, the taxpayer is not entitled to the refund it already received for the --- tax year.
2) Up until now, we have been trying to convince the IRS that the Form 1139 filed in ---
--- contained a mathematical error that the IRS could (and should) have corrected within the meaning of Treas. Reg. § 1.6411-3 and therefore the Form 1139 was a timely, valid tentative refund application. The lack of a valid election to carryback the NOL more than the normal 2-year period is not a mathematical error that the IRS could have corrected. Therefore, there is no legal basis for advocating to the IRS that the taxpayer is entitled to the --- refund that it received, or the --- refund that it has not yet received. The --- tax year is under audit and the correct amount of the ---NOL will be determined during the audit, and the taxpayer can file a Form 1120X for the --- tax year to claim the correct amount of refund.
---
---
---
---
---
4) Lastly, as I had previously mentioned, it may be possible for the taxpayer to obtain
Treas. Reg. § 1.9100 relief for the late IRC § 172(b)(1)(H) election, but that would
2 require the taxpayer to submit a private letter ruling request. I say "may be possible" because it is not clear at this time whether the taxpayer is eligible, given that the timeliness of the election is statutory, and Treas. Reg. § 1.9100 relief is typically reserved for elections with a due date set by regulation. That is something for the taxpayer's representative to explore and decide whether to submit a private letter ruling request.
Unless you have further questions, I will be closing my file on this case.
Thanks.