PLR 200428029: Parent receives 45 days to file late section 338 election

Plain-English summary

A corporate parent missed the deadline to elect asset sale treatment for its foreign subsidiary's purchase of a foreign target and three subsidiaries. The IRS found that the parent had reasonably relied on a qualified tax professional, requested relief before the IRS discovered the omission, and would not prejudice the government. It granted 45 days to file the § 338 election under the regulatory extension rules. The parties also had 120 days to file or amend affected returns. The relief depends on their aggregate tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: Could the parent file a late § 338 election for the stock acquisition and deemed subsidiary acquisitions?
• Outcome: Approved, subject to filing and tax liability conditions.
• Key authorities: IRC § 338(g); Treas. Reg. §§ 1.338-2(d), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200428029
Release Date: 07/09/2004
Index Numbers: 338.01-02, 9100.06-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:CORP:1 – PLR-171127-03
In Re: Date:
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April 06, 2004

LEGEND

Parent = ----------------------------------------
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Purchaser = --------------------------------------------------------------

Target = ---------------------------------------------------------------------------------
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Target Sub 1 = -----------------------------------

Target Sub 2 = ---------------------------------------------

Target Sub 3 = -------------------------------------------

Sellers = ---------------------------

Date A = -------------------

Date B = ------------------

Date C = ------------------

Company Official = --------------------------------------------------------------------------------
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Tax Professional = ---------------------------------------------------------------------------------
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PLR-171127-03
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Dear --------------

This letter responds to a letter dated December 4, 2003, submitted on behalf of Parent, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election. Parent is requesting an extension to file a “§ 338 election” under § 338(g) of the Internal Revenue Code with respect to Purchaser’s acquisition of the stock of Target and the deemed acquisitions of the stock of Target Subs 1-3 (sometimes hereinafter referred to as the “Election”), on Date B. Additional information was received in letters dated February 6, 2004, February 27, 2004, and April 5, 2004. The material information is summarized below.

Parent is the common parent of a consolidated group. Purchaser is a wholly owned foreign subsidiary of Parent. Target, a publicly traded corporation, and Target Subs 1-3 are each foreign corporations.

On Date A, Purchaser made a tender offer 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 cash, pursuant to the offer to purchase. It is represented that Purchaser’s acquisition of the stock of Target qualified as a "qualified stock purchase," as defined in § 338(d)(3).

None of Target nor Target Subs 1-3 was a controlled foreign corporation, a passive foreign investment company, or a foreign personal holding company at any time during the portion of its taxable year that ends on the acquisition date (as defined in § 338(h)(2)).

Purchaser is a controlled foreign corporation as defined in § 957 (taking into account § 953(c)) and is 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 for its taxable year that includes the acquisition date.

The Election 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 § 301.9100-3, for an extension of time to file the Election. The period of limitations on assessment under § 6501(a) has not expired for Parent’s, Target’s, nor any of Target Sub 1-3’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.

PLR-171127-03
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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 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., § 1.338-2(d)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Parent to file the Election, provided Parent 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, Company Official, and Tax Professional explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that Parent reasonably relied on a qualified tax professional who failed to make, or advise Parent 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 Parent 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 § 301.9100-3, until 45 days from the date on this letter, for Parent to file the Election with respect to the acquisition of the stock of Target and the deemed acquisitions of the stock of Target Subs 1-3, as described above.

PLR-171127-03
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WITHIN 45 DAYS OF THE DATE ON THIS LETTER, Parent must file the Election on Form 8023, executed on or after the date on this letter, in accordance with § 1.338-2(d) and § 1.338-2(e)(3) 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 (or Form 8883, if appropriate) must be attached to the returns.

The above extension of time is conditioned on the taxpayers' (Parent’s, Target’s, and Target Sub 1-3’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 § 301.9100-3, 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.

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.

PLR-171127-03
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Pursuant to the power of attorney on file in this office, copies of this letter are being sent to Parent and a second authorized representative.

Sincerely,

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

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