PLR 200312017: Buyer and seller receive more time for stock purchase election

Plain-English summary

A buyer acquired two subsidiaries from a seller, and both sides intended to make a joint section 338(h)(10) election for the stock purchases. They missed the filing deadline but requested relief before the IRS discovered the omission. The IRS gave them 45 days to file Form 8023 and 120 days to file or amend returns reporting the transactions consistently. Relief depends on their combined tax liability for affected years, accounting for the time value of money, being no lower than if they had filed on time. The IRS did not decide whether the purchases actually qualified for section 338(h)(10) treatment.

Ruling snapshot

• Question: May the buyer and seller file a late section 338(h)(10) election for two stock acquisitions?
• Outcome: Approved, subject to filing deadlines and a tax liability condition
• Key authorities: IRC § 338; Treas. Reg. §§ 1.338(h)(10)-1, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200312017
Washington, DC 20224
Release Date: 3/21/2003
Index Numbers: 338.01-02 Person to Contact:
9100.07-00
Telephone Number:

Refer Reply To:
CC:CORP:B02 - PLR-151329-02
Date:
December 16, 2002

LEGEND
Parent
=

Purchaser =

Target 1 =

Target 2 =

Seller
=

Date A
=

Date B
=

Date C
=

Date D
=

Company Official =

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Dear
:

This letter responds to a letter dated September 17, 2002, submitted on behalf of Parent and Seller, requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations to file an election. Parent and Seller are requesting an extension to file a “§ 338(h)(10) election” under §§ 338(g) and 338(h)(10) of the Internal Revenue Code and § 1.338(h)(10)-1(c) of the Income Tax Regulations with respect to Purchaser’s acquisition of the stock of Target 1 and Target 2 (sometimes hereinafter referred to as the “Election”), on Date C. Additional information was received in letters dated October 30, 2002, November 7, 2002, and November 8, 2002. The material information is summarized below.

Parent is the common parent of a consolidated group of which Purchaser is a member. Seller is the common parent of a consolidated group of which Target 1 and Target 2 were members.

On Date A, Parent and Seller entered into a stock purchase agreement by which Parent would form Purchaser (a wholly-owned subsidiary) as a vehicle through which Parent would acquire all of the stock of Target 1 and Target 2 from Seller. On Date B, Parent formed Purchaser, and subsequently, on Date C, Purchaser acquired all of the stock of Target 1 and Target 2 from Seller in exchange for cash and stock of Parent. It is represented that Purchaser’s acquisition of the stock of Target 1 and Target 2 qualified as "qualified stock purchases," as defined in § 338(d)(3).

Parent and Seller intended to file the Election. The Election was due on Date D, 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 the Parent consolidated group’s, or the Seller consolidated group’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."

Section 338(h)(10) permits the purchasing and selling corporations to elect jointly to treat the target corporation as deemed to sell all of its assets and distribute the proceeds in complete liquidation. A § 338(h)(10) election may be made for a target

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corporation only if purchaser acquires stock meeting the requirements of § 1504(a)(2) from a selling consolidated group, a selling affiliate, or the S corporation shareholders in a qualified stock purchase. Section 1.338(h)(10)-1(c)(1).

Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable extension of time to make a regulatory or 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(h)(10)-1(c)(2)). Therefore, the Commissioner has discretionary authority under § 301.9100-1 to grant an extension of time for Parent and Seller to file the Election, provided Parent and Seller show they 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, Seller, and Company Official explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that 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).

Based on the facts and information submitted, including the representations made, we conclude that Parent and Seller have shown they 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 and Seller to file the Election with respect to the acquisition of the stock of Target 1 and Target 2, as described above.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, Parent and Seller must file the Election on Form 8023, executed on or after the date on this letter, in accordance with § 1.338(h)(10)-1(c) and the instructions to the form. A copy of this letter must be attached to Form 8023.

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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(h)(10) 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 the taxpayers’ (the Parent consolidated group’s and the Seller consolidated group’s) tax liability (if any) not being 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/sale” of the Target 1 and Target 2 stock qualify as "qualified stock purchases" under § 338(d)(3); (2) whether the “acquisition/sale” of Target 1 and Target 2 stock qualify for § 338(h)(10) treatment; or (3) 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.

Parent must provide Seller with a copy of this letter.

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.

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Pursuant to the power of attorney on file in this office, the original of this letter is being sent to the taxpayer’s authorized representative, and copies to the taxpayer and its other authorized representative.

Sincerely yours,

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