PLR 200249006: Purchaser gets more time for a section 338 election on a foreign subsidiary

Plain-English summary

A corporate purchaser acquired a foreign target and sought to elect under section 338 for a subsidiary it was deemed to acquire. It represented that the election for the target was timely, but the separate election for the subsidiary was not validly filed by its due date. The IRS found that the purchaser reasonably relied on a tax professional and requested relief before the IRS found the omission. It granted 45 days from the ruling date to file the subsidiary's election on Form 8023 and required affected returns to be filed or amended within 120 days. The extension depends on a valid target election, the subsidiary's corporate status on the acquisition date, and the aggregate tax liability condition stated in the letter. Penalties and interest otherwise due still apply.

Ruling snapshot

• Question: May the purchaser file a late section 338 election for the deemed acquisition of the target's subsidiary?
• Outcome: Approved, with a 45 day election deadline and related filing conditions.
• Key authorities: IRC § 338; Treas. Reg. §§ 1.338-2T(d), 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200249006
Washington, DC 20224
Release Date: 12/06/2002
Index Numbers: 338.01-02
Person to Contact:
9100.06-00
Telephone Number:
(202) 622-7550
Refer Reply To:
CC:CORP:B05 - PLR-126717-02
Date:
September 6, 2002

LEGEND

Purchaser =

Sub
=

Target
=

Date A
=

Date B
=

Date C
=

Company Officials =

Dear :

This letter responds to a letter dated May 10, 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 Purchaser’s deemed acquisition of the stock of a wholly owned subsidiary of Target, Sub (sometimes hereinafter referred to as the “Election”), on Date B. (All citations in

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this letter to regulations under § 338 are to regulations in effect on Date B). A separate ruling request was submitted to the Office of Associate Chief Counsel (Passthroughs & Special Industries) for an extension of time to file a disregarded entity election under
§ 301.7701-3 for Sub to be effective no earlier than the day after Date B. Additional information was received in a letter dated July 5, 2002. The material information is summarized below.

Purchaser is the common parent of a consolidated group. Target is a foreign corporation. At the time of the purchase described below, Target held all of the stock of Sub, also a foreign corporation.

On Date A, Purchaser and Sellers (numerous individuals, trusts, and/or corporations) entered into a purchase agreement for Purchaser to acquire all of the Target stock from Sellers. On Date B, Purchaser acquired all of the stock of Target from Sellers in exchange for approximately
. 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 acquisition, Target and Sub did not file a United States income tax return, were not subject to United States income taxation, nor were required, under § 1.6012-2(g), to file a United States income tax return. In addition, neither Target nor Sub was (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).

It has been asserted that the § 338 election for Target was timely filed. The Election for Sub 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 Purchaser’s consolidated group’s or Target’s or Sub’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

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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 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 and Company Officials 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 make, or advise Purchaser 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 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 deemed acquisition of the stock of Sub, 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 of 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.

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The above extension of time is conditioned on Purchaser’s § 338 election with respect to Target being valid, Sub being treated as a corporation for Federal tax purposes effective on Date B, and the taxpayers' (Purchaser's consolidated group’s, Target’s and Sub’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).

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 § 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 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 the taxpayer.

Sincerely,

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