PLR 200205016: Buyer receives extension to file section 338 election

Plain-English summary

A corporation intended to elect IRC § 338(g) treatment for its purchase of a foreign target's stock, but a valid election was not filed by the deadline. The IRS found that the corporation had reasonably relied on a qualified tax professional and granted 45 days from the ruling date to file the election. The extension required affected returns to be filed or amended within 120 days and was conditioned on aggregate tax liability not being lower than it would have been with a timely election. The IRS did not decide whether the acquisition was a qualified stock purchase or determine the resulting tax liability.

Ruling snapshot

• Question: May the buyer file its section 338(g) election after the deadline?
• Outcome: Approved: 45 days to file, subject to return filing and tax liability conditions.
• Key authorities: IRC § 338; Treas. Reg. §§ 1.338-2T, 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200205016
Washington, DC 20224
Release Date: 2/1/2002
Index Number: 9100.06-00
Person to Contact:
338.01-02
Telephone Number:

Refer Reply To:
CC:CORP:BR06-PLR-139436-01
Date:
October 24, 2001

Legend

Corp1
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Purchaser
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Target
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Sellers
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Date A
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Date B
=

Date C
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Date D
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Company Official =

:

This letter responds to a letter dated July 18, 2001, submitted on behalf of Corp1, requesting an extension of time under §§301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations to file an election. Corp1 is requesting an extension to file a “§ 338 election” under § 338(g) with respect to Purchaser’s acquisition of the stock of Target (sometimes hereinafter referred to as the “Election”), 2
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on Date B. (All citations in this letter to regulations under § 338 are to regulations in effect on Date B.) Additional information was received in letters dated August 23, 2001 and September 25, 2001. The material information is submitted below.

Target is a foreign corporation. Corp1 is the sole shareholder of Purchaser.
Effective Date D, Purchaser is a disregarded entity for federal tax purposes. On Date A, Purchaser and Sellers entered into a purchase agreement for Purchaser to acquire all the Target stock from Sellers. On Date B, Purchaser acquired all of the stock of Target from Sellers in exchange for cash and preference stock, pursuant to the purchase agreement. It is represented that the acquisition of the stock of Target qualified as a “qualified stock purchase,” as defined in § 338(d)(3).

Prior to the acquisition, Target did not file a United States income tax return, was not subject to United States income taxation, nor was required, under § 1.6012-2(g), to file a United States income tax return. In addition, Target was not (1) a controlled foreign corporation within the meaning of § 957(a); (2) a passive foreign investment company for which an election under § 1295 was in effect; or (3) a foreign investment company or a foreign corporation the stock ownership of which is described in § 552(a).

Prior to its becoming a disregarded entity, Purchaser was a CFC as defined in § 957 and was not required under § 1.6012-2(g)(2)(i)(b)(2) to file a United States income tax return for its taxable year that includes the acquisition date.

Corp 1 intended to file the Election. The Election was due on Date C, 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 Corp1's or Target’s 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 3
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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 Corp 1 to file the Election, provided Corp 1 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 interest of the government.

Information, affidavits, and representations submitted by Corp 1 and Company Official explain the circumstances that resulted in the failure to timely file a valid election. The information establishes that a qualified tax professional was responsible for the Election and was aware of all of the relevant facts, that Corp 1 relied on the tax professional to make the Election, and that the interests of the government will not be prejudiced if relief is granted. See § 301.9100-3(b)(1)(v).

Based on the facts and information submitted, including the representations made, we conclude that Corp 1 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 Corp 1 to file the Election with respect to the acquisition of stock of Target, 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’ (Corp 1's 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 than 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 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).

Corp 1 must file the Election in accordance with § 1.338-2T. 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. Corp 1 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 4
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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 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 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.

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

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to the taxpayer.

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