PLR 200247044: Purchaser gets 45 more days to file a section 338 election

Plain-English summary

A domestic corporation bought all the stock of a foreign target and intended to elect under section 338(g) to treat the purchase as an asset acquisition for tax purposes. Its tax professional failed to file a valid election by the deadline. The IRS found that the purchaser reasonably relied on the professional, sought relief before the IRS found the omission, and would not prejudice the government's interests. It allowed 45 days from the letter date to file Form 8023 and required affected returns to be filed or amended within 120 days. The relief depended on the target being treated as a corporation on the purchase date and on an aggregate tax liability condition. The IRS did not decide whether the stock purchase itself met section 338's requirements.

Ruling snapshot

• Question: May the purchaser file a late section 338(g) election for its acquisition of the foreign target?
• Outcome: Approved: 45 more days to file the election, subject to stated conditions.
• Key authorities: IRC § 338; 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: 200247044
Washington, DC 20224
Release Date: 11/22/2002
Index Numbers: 338.01-02
Person to Contact:
9100.06-00
Telephone Number:

Refer Reply To:
CC:CORP:4 PLR-125007-02
Date:
August 23, 2002

LEGEND

Purchaser
=

Target
=

Sellers
=

Date A
=

Date B
=

Country 1
=

Company Official =

Tax Professional =

Accounting Firm
=

This letter responds to a letter dated May 2, 2002, submitted on behalf of Purchaser, requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations to file an election. Purchaser is requesting an extension to file a “§ 338 election” under § 338(g) with respect to its 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.) A separate request has been made to the Office of Associate Chief Counsel (Passthroughs and Special Industries) for an extension of time to file a disregarded entity election for Target under § 301.7701-3(c) to be effective no earlier -2-

than the day after Date A. Additional information was submitted in a letter dated July 16, 2002. The material information is summarized below.

Purchaser is a publicly-traded domestic corporation and common parent of a consolidated group.

Prior to the stock acquisition described below, Target was a Country 1 company owned by three individuals (collectively, the “Sellers”).

Purchaser and Sellers entered into a purchase agreement for Purchaser to acquire all of the Target stock from Sellers. On Date A, Purchaser, pursuant to the purchase agreement, acquired all of the stock of Target from Sellers in exchange for cash less certain costs. It is represented that Purchaser’s acquisition of the stock of Target qualified as a "qualified stock purchase," as defined in § 338(d)(3).

Prior to the stock acquisition, Target did not file a United States income tax return, was not subject to United States income taxation, and was not required, under § 1.6012-2(g) (other than § 1.6012-2(g)(2)(i)(b)(2)) 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 was made under § 1295; or (3) a foreign investment company or a foreign corporation the stock ownership of which is described in § 552(a).

Purchaser has submitted material evidencing its intent to file the Election. The Election was due on Date B, 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 timely 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 Purchaser’s or Target’s taxable years in which the stock 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-

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 Purchaser to file the Election, provided Purchaser 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, Company Official, Tax Professional, and various accountants in Accounting Firm explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that Purchaser reasonably relied on a qualified tax professional who failed to timely file the Election, the request for relief was filed before the failure to make a timely 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) and (v).

Based on the facts and information submitted, including the representations made, we conclude that Purchaser 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 Purchaser to file the Election with respect to the acquisition of the stock of Target, as described above.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, Purchaser must file the Election on Form 8023, executed on or after the date on this letter, in accordance with § 1.338-2T(d) and the instructions to the form. A copy of this letter must be attached to Form 8023.

WITHIN 120 DAYS OF THE DATE ON THIS LETTER, all relevant parties must file or amend, as applicable, all returns and amended returns (if any) necessary 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). A copy of this letter and a copy of Form 8023 must be attached to the returns.

The above extension of time is conditioned on: (i) Target being treated as a corporation for Federal tax purposes effective on Date A; and (ii) the taxpayers' (Purchaser's consolidated group’s and Target’s) tax liability (if any) not being lower, in the aggregate, for all years to which the Election applies, than it would have been had the Election 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 -4-

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).

We express no opinion as to: (1) whether the acquisition of the Target stock qualified as a "qualified stock purchase" under § 338(d)(3); or (2) any other Federal income tax consequence 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.

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 a power of attorney on file in this office, copies of this letter are being sent to the taxpayer and to a second authorized representative.

Sincerely,

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

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