PLR 200134009: Extension granted for S corporation stock purchase election

Plain-English summary

A corporate purchaser bought all the stock of an S corporation and intended to join the sellers in making a § 338(h)(10) election, but the election was not filed by its deadline. A tax professional discovered the omission after the due date, before the IRS did. The IRS found that the parties had acted reasonably and in good faith and that an extension would not prejudice the government. It granted 30 days from the letter date to file a new Form 8023 election, conditioned on filing the necessary returns within 120 days and meeting the stated tax liability condition. The IRS did not determine whether the acquisition actually qualified for § 338(h)(10) treatment; the ruling addressed filing time.

Ruling snapshot

• Question: Could the purchaser and S corporation sellers make their joint § 338(h)(10) election after the filing deadline?
• Outcome: Approved: 30 days to file, subject to return filing and tax liability conditions.
• Key authorities: IRC § 338(h)(10); Treas. Reg. §§ 301.9100-1, 301.9100-3, 1.338(h)(10)-1(d).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200134009
Washington, DC 20224
Release Date: 8/24/2001
Index Numbers: 338.01-02, 9100.07-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:CORP:4 PLR-130413-00
Date:
May 22, 2001

LEGEND:

Purchaser =

Target
=

Sellers =
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Company Official =

Tax Professional =

Date A =

Date B =

Month C =
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This letter responds to a letter dated December 7, 2000, submitted on behalf of Purchaser and Sellers by their authorized representative, requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations to file an election. Purchaser and Sellers are requesting an extension to file a “§ 338(h)(10) election” under §§ 338(g) and 338(h)(10) of the Internal Revenue Code and § 1.338(h)(10)-1(d) of the Income Tax Regulations with respect to Purchaser’s acquisition of the stock of Target (sometimes hereinafter referred to as the “Election”), on Date A. All citations in this letter to regulations under § 338 are to regulations in effect on Date A. Additional information was received in a letter dated April 24, 2001. The material information is summarized below.

Purchaser is a domestic holding company and the common parent of a consolidated group. Before the Acquisition (as defined below), Target was an S corporation within the meaning of § 1361, and was wholly owned by Sellers.

On Date A, Purchaser acquired all of Sellers' Target stock in exchange for cash in a fully taxable transaction (the “Acquisition”). It is represented that the Acquisition qualified as a “qualified stock purchase” as defined in § 338(d)(3). Following the Acquisition, "new" Target has filed as part of Purchaser’s consolidated group.

The Election was due on Date B. However, for various reasons, the Election was not filed. In Month C (which is after Date B), Purchaser’s current Tax Professional discovered that the Election had not been filed. Subsequently, this request for an extension of time to file the Election was submitted under § 301.9100-1. It has been represented that no facts have changed between the due date for the Election and the date of Purchaser and Sellers’ request for relief that make the Election more advantageous to the taxpayers than the Election would have been at the due date for the Election. The period of limitations on assessment under § 6501(a) has not expired for Purchaser’s, Sellers’, or Target's taxable year(s) in which the Acquisition occurred, the taxable year in which the Election should have been filed, or for any taxable years that would have been affected by the Election had it been timely filed.

Section 338(a) permits certain stock purchases to be treated as asset acquisitions if: (1) the purchasing corporation makes or is treated as having made a "§ 338 election" or a “§ 338(h)(10) election”; and (2) the acquisition is a "qualified stock purchase."

Section 338(h)(10) permits the purchasing and selling corporations to
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elect jointly to treat the target corporation as deemed to sell all of its assets and distribute the proceeds in complete liquidation. A § 338(h)(10) election may be made for target only if it is a member of a selling consolidated group, a member of a selling affiliated group filing separate returns, or an S corporation. Section 1.338(h)(10)-1(a).

Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make a regulatory election. Section 301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for making certain elections. Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. Section 301.9100-3(a).

In this case, the time for filing the Election is fixed by the regulations (i.e., § 1.338(h)(10)-1(d)). Therefore, the Commissioner has discretionary authority under § 301.9100-1 to grant an extension of time for Purchaser and Seller to file the Election, provided Purchaser and Seller show they acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government.

Information, affidavits, and representations submitted by Purchaser, Target, and Company Official explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that the request for relief was initiated before the failure to make the Election was discovered by the Internal Revenue Service and that the interests of the government will not be prejudiced if relief is granted. See § 301.9100-3(b)(1)(i).

Based on the facts and information submitted, including the representations made, we conclude that Purchaser and Seller have shown they acted reasonably and in good faith, the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government. Accordingly, an extension of time is granted under § 301.9100-1, until 30 days from the date of issuance of this letter, for Purchaser and Seller to
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file the Election with respect to the acquisition of the stock of Target, as described above.

The above extension of time is conditioned on (1) the filing, within 120 days of the issuance of this letter, of all returns and amended returns (if any) necessary to report the transaction in accordance with the Election, and (2) the taxpayers' (Purchaser's consolidated group’s, Sellers’, and Target’s) tax liability (if any) 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 made (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 applicable Director’s office upon audit 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’ tax liability is lower. Section 301.9100-3(c).

Purchaser and Sellers must file the Election in accordance with § 1.338(h)(10)-1(d). That is, a new election on Form 8023 must be executed on or after the date of this letter, which grants an extension, and filed in accordance with the instructions to the form. A copy of this letter must be attached to the election form. Purchaser and Sellers must file or amend, as applicable, their returns to report the transaction as a § 338(h)(10) transaction for the taxable year in which the transaction was consummated (and for any other affected taxable year), and to attach to the returns a copy of this letter and a copy of the Election.

We express no opinion as to: (1) whether the “acquisition/sale” of the Target stock qualifies as a "qualified stock purchase" under § 338(d)(3); (2) whether the “acquisition/sale” of Target stock qualifies for § 338(h)(10) treatment; or (3) any other tax consequences arising from the Election.

In addition, we express no opinion as to the tax consequences of filing the Election late under the provisions of any other section of the Code and regulations, or as to the tax treatment of any conditions existing at the time of, or resulting from, filing the Election late that are not specifically set forth in the above ruling. For purposes of granting relief under § 301.9100-1, we relied on certain statements and representations made by the taxpayers. However, the Director should verify all essential facts. In addition, notwithstanding that an extension is granted under § 301.9100-1 to file the Election, penalties and interest that would otherwise be applicable, if any, continue to apply.
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A copy of this letter is being sent to Purchaser pursuant to powers of attorney on file with this office. Purchaser must provide each of the Sellers with a copy of this letter.

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

Sincerely yours,
Associate Chief Counsel (Corporate)
By:
Senior Technician Reviewer, Branch 3