PLR 200318067: Late stock purchase election allowed with amended returns

Plain-English summary

A corporate purchaser and six sellers intended to elect under § 338(h)(10) to treat a stock acquisition as an asset sale, but missed the filing deadline. The IRS granted an extension after finding that the purchaser reasonably relied on tax professionals and that relief would not prejudice the government. The parties had 30 days to file Form 8023 and all required original or amended returns reflecting the election. Relief was conditioned on their combined tax liability across affected years being no lower than if they had filed on time. The IRS did not decide whether the purchase otherwise qualified for the election, and any applicable penalties and interest remained.

Ruling snapshot

• Question: Could the purchaser and sellers file a late § 338(h)(10) election for the stock purchase?
• Outcome: Approved, subject to filing and tax liability conditions.
• Key authorities: IRC § 338(h)(10); Treas. Reg. §§ 1.338(h)(10)-1T(c), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200318067 Washington, DC 20224
Release Date: 5/2/2003
Index Numbers: 338.01-02 Person to Contact:
9100.07-00
Telephone Number:

Refer Reply To:
CC:CORP:2 - PLR-162188-02
Date:
January 30, 2003

LEGEND

Purchaser =

Target =

Seller 1 =

Seller 2 =

Seller 3 =

Seller 4 =

Seller 5 =

Seller 6 =
PLR-162188-02
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Date A
=

Date B
=

Company Official =

Tax Professional 1 =

Tax Professional 2 =

Dear
:

This letter responds to a letter dated November 7, 2002, submitted on behalf of Purchaser and Seller 1, Seller 2, Seller 3, Seller 4, Seller 5, and Seller 6 (sometimes hereinafter referred to collectively as “Sellers”), requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election. Purchaser and Sellers 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)-1T(c) of the Income Tax Regulations with respect to Purchaser’s 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.) Additional information was received in letters dated December 13, 2002 and January 16, 2003. The material information is summarized below.

Purchaser, a C corporation, is not a member of a consolidated group. Target was an S corporation whose shareholders were Seller 1, Seller 2, Seller 3, Seller 4, Seller 5, and Seller 6.

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

Purchaser and Sellers intended 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 filed. Subsequently, this request was submitted, under § 301.9100-3, for an extension of time to file the Election.
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The period of limitations on assessment under § 6501(a) has not expired for Purchaser’s, Target’s, or Sellers’ 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 corporation and sellers 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 target 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)-1T(c)(1).

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 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)-1T(c)(2)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Purchaser and Sellers to file the Election, provided Purchaser and Sellers 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 Purchaser, Sellers, Company Official, Tax Professional 1, and Tax Professional 2 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, and that the interests of the government will not be prejudiced if relief is granted. See § 301.9100-3(b)(1)(v).
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Based on the facts and information submitted, including the representations made, we conclude that Purchaser and Sellers 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 § 301.9100-3, until 30 days from the date on this letter, for Purchaser and Sellers to file the Election with respect to the acquisition of the stock of Target, as described above.

WITHIN 30 DAYS OF THE DATE ON THIS LETTER, Purchaser and Sellers must file the Election on Form 8023, executed on or after the date on this letter, in accordance with § 1.338(h)(10)-1T(c) and the instructions to the form. A copy of this letter must be attached to Form 8023.

ALSO WITHIN 30 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' (Purchaser's, Sellers’, 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 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 stock qualifies as a "qualified stock purchase" under § 338(d)(3); (2) whether the “acquisition/sale” of Target stock qualifies 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 § 301.9100-3, 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 § 301.9100-3 to file the Election, penalties and interest that would otherwise be applicable, if any, continue to apply.

Purchaser must provide Sellers with a copy of this letter.
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This letter is directed only to the taxpayers 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 your authorized representative.

Sincerely,

Ken Cohen
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel (Corporate) PLR-162188-02 -6-

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