The IRS recently released guidance (TAM 202120015) addressing whether a taxpayer electing to waive a right to carry back an entire net operating loss (NOL) under Section 172(b)(3) and Treas. Reg. Sec. 1.1502-21(b)(3)(i) can make a separate 10-year carryback election for specified liability losses not composed of product liability losses (PLLs).
The IRS determined that a separate election to carryback specified liability losses cannot be made, except for the 10-year carryback period for product liability losses.
The taxpayer addressed by the TAM was the parent of an affiliated group that files a consolidated return that incurred consolidated NOLs. The taxpayer, however, made valid elections waiving its right to carryback these losses. Subsequently, the taxpayer discovered it had specified liability losses (SLLs) and filed an amended return to make a 10-year carryback election. In the explanation of the claim, the taxpayer stated that it had intended only to waive the general two-year carryback for NOLs provided by Section 172(b)(1)(A), but not the 10-year carryback period for SLLs provided by Section 172(b)(1)(C).
Section 172(b)(3) provides that a taxpayer entitled to a carryback period under Section 172(b)(1) may elect to relinquish the entire carryback period with respect to a NOL and that once made shall be irrevocable for that year.
Teas. Reg. Sec. 1.172-13(c)(4) provides that if a taxpayer sustains during the taxable year both a NOL not attributable to product liability and a product liability loss, an election pursuant to Section 172(b)(3)(C)—relating to election to relinquish the entire carryback period—does not preclude the product liability loss from being carried back 10 years under Section 172(b)(1)(l) and paragraph (a)(1).
Teas. Reg. Sec. 1.1502-21(b)(3)(i) provides that a consolidated group may make an irrevocable election under Section 172(b)(3) to relinquish the entire carryback period with respect to a consolidated NOL for any consolidated return year.
In reaching its conclusion, the IRS stated that Treas. Reg. Section 1.172-13, by its terms, only applies to PLLs, not SLLs, and that no statutory or other binding authority exists to expansively apply the regulatory exception to carryback periods for loss types not mentioned in the regulation. However, this conclusion does not appear consistent with the legislative or regulatory history of Section 172, nor the regulations thereunder.
Greg Fairbanks is a Managing Director with the Corporate Tax group at Grant Thornton’s Washington National Tax Office. Within this group, Greg provides consultation on corporate and transaction matters including section 382 analyses, cancellation of debt/section 108 analyses, stock basis analyses, e&p analyses, corporate formations, liquidations, mergers, acquisitions, distributions, redemptions and other general corporate tax matters.
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