PLR 200303050: Buyer gets more time for section 338 election

Plain-English summary

A U.S. corporation acquired a foreign company and missed the deadline for a section 338 election covering that company and a deemed acquisition of its subsidiary. The buyer said it had relied on tax professionals who failed to make or advise it to make the election. The IRS found that the buyer acted reasonably and in good faith and that relief would not prejudice the government. It granted 45 days to file Form 8023 and required the relevant parties to file or amend affected returns within 120 days. Relief depended on their aggregate tax liability being no lower than it would have been with a timely election. The IRS did not determine whether the purchase otherwise qualified for the election.

Ruling snapshot

• Question: May the buyer file a late section 338 election for the foreign target and its subsidiary?
• Outcome: Approved, subject to the filing deadlines and tax liability condition.
• Key authorities: IRC § 338(g); 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: 200303050
Washington, DC 20224
Release Date: 1/17/03
Index Numbers: 338.01-02; 9100.06-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:CORP:4 - PLR-146240-02
Date:
October 16, 2002

LEGEND

Purchaser =

Target
=

Target Subsidiary1 =

Sellers
=

State A
=

Date A
=

Date B
=

Company Official =

Tax Professionals =

This letter responds to a letter dated August 19, 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

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requesting an extension to file a “§ 338 election” under § 338(g) with respect to Purchaser’s acquisition of the stock of Target and the deemed acquisition of the stock of Target Subsidiary1 (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 October 11, 2002. The material information is summarized below.

Purchaser is a publicly held State A corporation, and is the common parent of a consolidated group. Target and Target Subsidiary1 are foreign corporations. Target Subsidiary1 is a wholly owned subsidiary of Target.

On Date A, Purchaser acquired all of the stock of Target from Sellers in exchange for cash, the assumption of certain liabilities, and acquisition related expenses. 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, neither Target nor Target Subsidiary1 filed a United States income tax return, was subject to United States income taxation, nor was required, under § 1.6012-2(g), to file a United States income tax return. In addition, neither Target nor Target Subsidiary1 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; nor (3) a foreign investment company or foreign corporation the stock ownership of which is described in § 552(a).

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 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, Target’s or Target Subsidiary1'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.

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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, Company Official, and Tax Professionals explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that Purchaser reasonably relied on qualified tax professionals 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 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 and the deemed acquisition of the stock of Target Subsidiary1, 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 the taxpayers' (Purchaser's consolidated group’s, Target’s and Target Subsidiary1'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 Industry 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 Industry 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 the power of attorney on file in this office, the original of this letter has been sent to the taxpayer’s authorized representative, and copies to the taxpayer and the second authorized representative.

Sincerely yours,

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