PLR 200652034: U.S. shareholders receive time for a foreign acquisition's section 338 election

Plain-English summary

A U.S. parent and subsidiary missed the election deadline for treating a foreign corporation's stock acquisition as an asset acquisition under section 338(g). They represented that they had always reported the transaction consistently with the intended election and sought relief before the IRS discovered the omission. The IRS granted 45 days to file Form 8023 and required relevant parties to file or amend affected returns within 120 days. Relief depended on aggregate tax liability, including the time value of money, not being lower than with a timely election. The ruling did not determine whether the purchase qualified under section 338 or resolve other tax consequences, and otherwise applicable penalties and interest remained.

Ruling snapshot

• Question: May the U.S. shareholders file a late section 338(g) election for the foreign target's acquisition?
• Outcome: Approved: 45 days for the election and 120 days for affected returns, subject to the tax-liability condition.
• Key authorities: IRC § 338(g); Treas. Reg. §§ 1.338-1(d), (g) and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200652034
Third Party Communication: None
Release Date: 12/29/2006
Date of Communication: Not Applicable
Index Number: 9100.06-00
Person To Contact:
-----------------
-----------------, ID No. -------------
------------------------------
Telephone Number:
----------------------------------------- ---------------------
------------------------------------------
Refer Reply To:
-------------------------------------
CC:CORP:B02
------------------
PLR-131093-06
Date:
October 02, 2006
-

-----------

Parent = -----------------------------------------
-------------------------------------------------------------------
------------------------------------------------------------

Sub = ----------------------------------------
-------------------------------------------------------------------
-----------------------------------------------------------

Purchaser = ------------------------------
-------------------------------------------------------------------

Target = -------------------------------
-------------------------------------------------------------------

Country X = ----------

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

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

Company Official = ------------------
-------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------
.

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

PLR-131093-06
2

This letter responds to a letter dated June 16, 2006, submitted on behalf of Parent and Sub (hereinafter collectively “Taxpayers”), requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to file an election. Taxpayers, as United States shareholders of Purchaser, are requesting an extension to file a “§ 338 election” under § 338(g) with respect to Purchaser’s acquisition of the stock of Target (sometimes hereinafter referred to as the “Election”), on Date A. (Citations in this letter to regulations under § 338 are to regulations in effect on Date A.) Additional information was received in a letter dated September 27, 2006. The material information is summarized below.

Parent owns all of the outstanding stock of Sub. Parent and Sub do not file a consolidated Federal income tax return. Prior to the transaction described below, Sub owned all of the stock of Purchaser, a Country X corporation. On Date A, Purchaser acquired all of the stock of Target, also a Country X corporation, from Target’s shareholders in exchange for cash. It is represented that Purchaser’s acquisition of Target was a “qualified stock purchase” as described in § 338(d)(3).

Taxpayers have represented that at all times, Parent and Sub have treated the transaction, and will continue to treat the transaction, as if a § 338(g) election had been made and filed. Taxpayers have further represented that Target was not 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).) Finally, Taxpayers have represented that Purchaser is a controlled foreign corporation as defined in § 957 (taking into account
§ 953(c)) and was 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.

Taxpayers 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 of 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, Sub’s, or Target’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

PLR-131093-06
3

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- 1(d)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Taxpayers to file the Election, provided Taxpayers 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 Taxpayers 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 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 Taxpayers 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 45 days from the date on this letter, for Taxpayers to file the Election with respect to the acquisition of the stock of Target, as described above.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, Taxpayers must file the Election on Form 8023 in accordance with § 1.338-1(d) and (g) 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. Alternatively, instead of attaching a copy of this letter to the returns, taxpayers filing their returns electronically may attach a statement to their return that provides the date and control number of the letter ruling.

PLR-131093-06
4

The above extension of time is conditioned on the taxpayers' (Taxpayers’ 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 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 of time is granted under § 301.9100-3 to file the Election, penalties and interest that would otherwise be applicable, if any, continue to apply.

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to your authorized representatives.

Sincerely,

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