PLR 200204033: Parent receives more time to make a section 338 stock purchase election

Plain-English summary

A parent corporation intended to elect under section 338(g) after acquiring a foreign target and interests in its affiliates, but missed the election deadline. The IRS found that the parent had reasonably relied on a qualified tax professional, sought relief before the IRS discovered the omission, and would not prejudice the government. It granted 45 days from the letter date to file the election. The relief required the affected returns or amended returns to be filed within 120 days and required the taxpayers' aggregate liability to be no lower than if the election had been timely. The IRS did not decide whether the acquisitions were qualified stock purchases or determine other tax consequences, and otherwise applicable interest and penalties still applied.

Ruling snapshot

• Question: Could the parent receive extra time to make a section 338(g) election for its stock purchases?
• Outcome: Approved, subject to the filing and tax liability conditions.
• Key authorities: IRC § 338(g); Treas. Reg. §§ 301.9100-1, 301.9100-3, 1.338-2T(d).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200204033
Washington, DC 20224
Release Date: 1/25/2002
Index Number: 0338.01-02, 9100.06-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:CORP:B06-PLR-142460-01
Date:
October 26, 2001

LEGEND

Parent
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Purchaser Holding =
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Disregarded Entity =

Sellers
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Minority Sellers =

Target
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Target Affiliate 1 =

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Target Affiliate 12 =

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State X
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Date A
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Date B
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Date C
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Date D
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Date E
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Month X
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Company Official =

Tax Professional =

This letter responds to a letter dated August 3, 2001, submitted on behalf of Parent, requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations to file an election. Parent is requesting an extension to file a “§ 338 election” under § 338(g) with respect to the acquisition of the stock of Target and the deemed acquisition of the stock of Target Affiliate 1-25 ("Target Affiliates") on Date A (sometimes hereinafter referred to as the “Election”). (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 September 24, 2001. The material information is summarized below.

Parent, a State X corporation, is the common parent of an affiliated group (the "Parent Group") that files a federal income tax return on a consolidated basis. Parent owns all of the stock of Purchaser Holding, a holding company, which owns all the stock of Purchaser which is also a holding company. In Month X, Year C, Purchaser organized Disregarded Entity as a Country R subsidiary. Disregarded Entity filed Form 8832 (Entity Classification Election) on Date B, electing to be disregarded as a separate entity for United States tax purposes. The effective date of the Disregarded Entity’s disregarded entity status was Date C.

On Date D, Parent and Sellers entered into a purchase agreement for Purchaser (through Disregarded Entity) to acquire all of the stock of Target, a holding company organized in Country S, from Sellers in exchange for cash. On Date A, which is after Date C, Disregarded Entity acquired from Sellers all of the stock of Target. As part of the same transaction, Purchaser also acquired some of the minority interests of some of the Target Affiliates from Minority Sellers. Target owned, directly or through some of Target Affiliates, at least 80% of the stock of Target Affiliates. Target Affiliates are foreign entities incorporated in either Country R, Country S, or Country T. It is

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represented that the acquisition of the stock of Target and the stock of Target Affiliates qualified as a “qualified stock purchase,” as defined in § 338(d)(3).

Prior to the acquisition, Target and Target Affiliates did not file United States income tax returns, were not subject to United States income taxation, nor were they required, under § 1.6012-2(g), to file United States income tax returns. In addition, Target and Target Affiliates were not: (1) controlled foreign corporations within the meaning of § 957(a); (2) passive foreign investment companies for which elections under § 1295 were in effect; or (3) foreign investment companies or foreign corporations the stock ownership of which is described in § 552(a).

Parent intended to file the Election. The Election was due on Date E, but for various reasons a valid Election was not filed. After the due date for the Election, it was discovered that the Election had not been filed. Subsequently, this request was submitted, under § 301.9100-1, for an extension of time to file the Election. The period of limitations on assessment under § 6501(a) has not expired for Parent Group’s, Target’s or Target Affiliates’ taxable years in which the acquisition occurred, the taxable years in which the Election should have been filed, or 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."

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., § 1.338-2T(d)). Therefore, the Commissioner has discretionary authority under § 301.9100-1 to grant an extension of time for Parent to file the Election, provided Parent 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 Parent, Company

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Official and Tax Professional explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that Parent reasonably relied on a qualified tax professional who failed to make, or advise Parent to make, the Election, the request for relief was filed before the failure to make the Election was discovered by the Internal Revenue Service, and that the government will not be prejudiced if relief is granted. See §§ 301.9100-3(b)(1)(i) and (v).

Based on the facts and information submitted, including the representations made, we conclude that Parent has shown it 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 45 days from the date on this letter, for Parent to file the Election with respect to the acquisition of the stock of Target and the deemed acquisition of the stock of Target Affiliates, as described above.

The above extension of time is conditioned on (1) the filing, within 120 days of the date on this letter, of all returns and amended returns (if any) necessary to report the transaction in accordance with the Election, and (2) the taxpayers' (Parent Group’s, Target’s and Target Affiliates’) 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).

Parent must file the Election in accordance with § 1.338-2T(d). That is, a new election on Form 8023 (Elections Under Section 338 for Corporations Making Qualified Stock Purchases) must be executed on or after the date on 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. Parent must file or amend, as applicable, its returns to report the transaction as a § 338 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 of the Target stock or the deemed acquisition of Target Affiliates qualifies as a "qualified stock purchase" under § 338(d)(3); or (2) 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

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Election, penalties and interest that would otherwise be applicable, if any, continue to apply.

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.

Pursuant to the power of attorney on file in this office, a copy of this letter is being sent to your authorized representative.

Sincerely yours,
Ken Cohen
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel (Corporate)