PLR 200615014: Parent given more time to elect asset treatment for foreign stock purchases

Plain-English summary

A corporate subsidiary purchased all the stock of eight foreign corporations, and its parent intended to elect under section 338(g) to treat the stock purchases as asset acquisitions for tax purposes. The parent missed the election deadline after reasonably relying on a qualified tax professional who failed to make or recommend a valid election. The IRS found that the parent acted reasonably and in good faith and that relief would not prejudice the government. It gave the parent 45 days from the letter date to file Form 8023, and required the relevant parties to file or amend affected returns within 120 days. The relief is conditioned on the group's aggregate tax liability being no lower than it would have been with a timely election, accounting for the time value of money.

Ruling snapshot

• Question: Could the parent make a late section 338(g) election for its subsidiary's purchases of eight foreign corporations?
• Outcome: Approved, subject to filing deadlines and a tax liability condition.
• Key authorities: IRC § 338; Treas. Reg. §§ 1.338-2T(d), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200615014
Third Party Communication: None
Release Date: 4/14/2006
Date of Communication: Not Applicable
Index Number: 338.01-02, 9100.06-00
Person To Contact:

- ---------------------, ID. No. -------------

                                                              Telephone Number:

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                                                              Refer Reply To:

                                                              CC:CORP:B04

                                                              PLR-143999-05
                                                              Date:
                                                              December 14, 2005
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Legend

Parent = ----------------------------------
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Purchaser = ------------------
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Target 1 = --------------------------------------------------------------

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

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

Target 4 = --------------------------------------------

Target 5 = ------------------------------

Target 6 = -----------------------------------

Target 7 = ---------------------------------------------------------------------------------
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Target 8 = --------------------------------------------

Seller = --------------------------------------

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

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

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

Date D = --------------------------

Date E = -----------------

Company Official 1 = ----------------------- --------------------------------------------------------
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Company Official 2 = ---------------------------------------------------------------------------------
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Company Official 3 = ---------------------------------------------------------------------------------
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Dear ------------------:

This letter responds to a letter dated August 22, 2005, 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) with respect to Purchaser’s acquisition in one transaction of the stock of Targets 1 through 8 (sometimes hereinafter referred to as the “Election”), on Date B. (Citations in this letter to regulations under § 338 are to regulations in effect on Date B.) Additional information was received in letters dated October 14, 2005, and December 6, 2005. The material information is summarized below.

Parent is a corporation that was the common parent of an affiliated group of corporations that filed a consolidated Federal income tax return for the tax year ended Date C. Purchaser is a subsidiary of Parent. Targets 1 through 8 are foreign corporations.

On Date A, Purchaser and Seller entered into a purchase agreement for Purchaser to acquire all of the stock of Targets 1 through 8 from Seller and/or subsidiaries of Seller. On Date B, Purchaser acquired all of the stock of Targets 1 through 8 from Seller in exchange for cash and a promissory note, pursuant to the

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purchase agreement. It is represented that Purchaser’s acquisition of the stock of Targets 1 through 8 qualified as a “qualified stock purchase,” as defined in § 338(d)(3).

It is represented that prior to the acquisition of Targets 1 through 8, all of Targets 1 through 8 were controlled foreign corporations within the meaning of § 957(a) and that Targets 1 through 8 were not passive foreign investment companies or foreign personal holding companies at any time during the portion of their taxable years that end on the acquisition date (as defined in § 338(h)(2)).

Parent intended to file the Election. The Election was due on Date D, but for various reasons a valid Election was not 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) for the consolidated group for the taxable years in which the acquisition occurred, the taxable years in which the Election should have been filed, or any taxable year that would have been affected by the Election had it been timely filed, will not expire until at least Date E.

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”; 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.

Section 301.9100-1 through 301.9100-3 provides 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) describes the Commissioner’s authority to grant an extension of time to make a regulatory election. 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 § 301.9100-3 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.

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Information, affidavits, and representations submitted by Parent, Company Official 1, Company Official 2, and Company Official 3 explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that the Parent reasonably relied on a qualified tax professional who failed to make, or advise Parent to make, a valid Election. See § 301.9100-3(b)(1)(v). The information further 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 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 Targets 1 through 8.

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 § 1.338-2T(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 (or Form 8883, if appropriate) must be attached to the returns.

The above extension of time is conditioned on the consolidated group’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 taxpayer’s 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 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,

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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.

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)

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