PLR 200634010: Parent gets 45 days to file a missed stock acquisition election

Plain-English summary

A corporate group filed IRC § 338(g) elections for three foreign companies it acquired but missed the election for a fourth company in the ownership chain. The parent said it had relied on a qualified tax professional who failed to make or recommend the fourth election. The IRS found reasonable conduct, good faith, and no prejudice to the government, and granted 45 days from the letter date to file Form 8023. Relevant parties also had 120 days to file or amend affected returns. The relief was conditioned on aggregate tax liability not being lower than if the election had been timely, and the IRS did not rule that the acquisitions qualified for § 338 treatment.

Ruling snapshot

• Question: Could the parent file a missed § 338(g) election for the deemed acquisition of a foreign subsidiary?
• Outcome: Approved subject to filing deadlines and a tax liability condition.
• Key authorities: IRC § 338(g); Treas. Reg. §§ 1.338-2(d), 301.9100-1, 301.9100-3.

Full text (IRS public release)

Number: 200634010
Release Date: 8/25/2006
Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Third Party Communication: None
Index Numbers: 338.01-02, 9100.06-00
Date of Communication: Not Applicable

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Person To Contact:
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Refer Reply To:
CC:CORP:4
PLR-164308-05
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Date: May 23, 2006

LEGEND

Parent = ---------------------------------------------
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Sub = ----------------------------------
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Purchaser = ----------------------------------------------------------
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Foreign Target = ---------------------------------------
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Foreign Target 1 = -------------------------
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Foreign Target 2 = --------------------------------------------------------
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Foreign Target 3 = --------------------------------------
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Foreign Seller = --------------------------------------
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Company Officials = -----------------------------------------------------------------------
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Date A = --------------------------
Date B = -----------------------

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

Dear --- ---------------:

This letter responds to a letter dated December 19, 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 the deemed acquisition of the stock of Foreign Target 3 (sometimes hereinafter referred to as the "Election") on Date B. Additional information was received in letters dated February 10, March 1, and March 24, 2006. The material information is summarized below.

Parent is the common parent of an affiliated group of corporations who join in filing a consolidated Federal income tax return. Immediately prior to and following the stock purchases described below, Parent wholly owned Sub, Sub wholly owned Purchaser, and Purchaser and Sub were members of Parent’s consolidated group.

Immediately prior to the stock purchases described below, Foreign Seller wholly owned Foreign Target, Foreign Target wholly owned Foreign Target 1, Foreign Target 1 wholly owned Foreign Target 2, and Foreign Target 2 wholly owned Foreign Target 3.

On Date A, Purchaser and Foreign Seller entered into a purchase agreement for Purchaser to acquire all of the stock of Foreign Target (which included the stock of Foreign Target 1, Foreign Target 2, and Foreign Target 3) from Foreign Seller. On Date B, Purchaser acquired all of the stock of Target from Foreign Seller for cash. Parent represents that this acquisition was a "qualified stock purchase," as defined in § 338(d)(3).

Prior to their acquisition, neither Foreign Target, Foreign Target 1, Foreign Target 2, nor Foreign Target 3 was a controlled foreign corporation, a passive foreign investment company, or a foreign personal holding company at any time during the portion of their respective taxable years that end on the acquisition date (as defined in § 338(h)(2)).

Parent filed § 338(g) elections for Foreign Target, Foreign Target 1 and Foreign Target 2. Parent intended to file the Election for Foreign Target 3. The Election was due on Date C, but for various reasons a valid Election was not filed. After the due date of the Election, it was discovered that the Election had not been filed. Subsequently,

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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 consolidated group's, Foreign Target’s, Foreign Target 1’s, Foreign Target 2’s, or Foreign Target 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.

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 and Company Officials 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

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under § 301.9100-3, until 45 days from the date on this letter, for Parent to file the Election with respect to the deemed acquisition of the stock of Foreign Target 3, as described above.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, Parent must file the Election on Form 8023 in accordance with § 1.338-2(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 8883 must be attached to the returns. Alternatively, any taxpayer filing its return electronically may satisfy the requirement of attaching a copy of this letter ruling to the return by attaching a statement to the return that provides the date and control number of this letter ruling.

The above extension of time is conditioned on the taxpayers' (Parent’s consolidated group’s, Foreign Target’s, Foreign Target 1’s, Foreign Target 2’s, and Foreign Target 3’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 of the stock of Foreign Target and the deemed acquisitions of the stock of Foreign Target 1, Foreign Target 2, and Foreign Target 3 qualify as "qualified stock purchases" under § 338(d)(3); (2) whether the § 338(g) elections filed for Foreign Target, Foreign Target 1 and Foreign Target 2 are valid; 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.

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This ruling 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 a 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)