How acquired target corporations can avoid denial of extension requests.

• Author: Adams, Bob

Recently, two C corporations in similar circumstances were surprised that the IRS denied their Forms 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns. In each instance, the parent company of a calendar-year-end consolidated return group had acquired another calendar-year-end consolidated return group. Because the acquisitions took place on June 30, 2010, and August 31, 2010, respectively, both target corporations filed a short-year return for 2010 preacquisition activity. In each case, a Form 7004 was electronically filed between December 31, 2010, and March 15, 2011, for the short-year return and was rejected by the IRS. Then, in each case, a paper Form 7004 was filed before March 15, 2011, and the IRS rejected each of those filings on a Form 6513, Extension of Time to File. In each case, the taxpayer had completed the Form 7004 with all the required basic identification information including the short tax year beginning and ending dates. In addition, under the heading "Short tax year" on line 5b, both taxpayers checked the box for "Consolidated return to be filed" as the reason their tax years were less than 12 months.

Eventually, these taxpayers acquired extensions for their short-year returns, but not without much communication with the IRS. Why did this happen, and how can it be avoided in these circumstances?

The explanation is fairly straight-forward: The e-file system rejected the e-filed Forms 7004 because its programming decided that they were filed late (i.e., after two months and 15 days from the indicated short-year end date). Similarly, upon receiving the paper Forms 7004, IRS personnel responded with denials on Forms 6513 because they saw only that the extension requests were made more than 2 1/2 months after the end of the short tax years.

In fact, the extension requests were timely because of the application of the consolidated return regulations (Regs. Sec. 1.1502-76(c)). Under those regulations, the due date for the tax...