PLR 200723024: Purchaser gets more time to elect asset treatment for stock purchase

Plain-English summary

A purchaser acquired all the stock of a foreign corporation and missed the deadline to file a § 338(g) election, which can treat a qualifying stock purchase as an asset acquisition for tax purposes. The IRS found that the purchaser acted reasonably and in good faith and that granting relief would not prejudice the government. It gave the purchaser 45 days from the letter date to file Form 8023 and required affected parties to file or amend relevant returns within 120 days. The relief is conditioned on their aggregate tax liability being no lower than it would have been with a timely election, taking the time value of money into account. The IRS did not decide whether the purchase actually qualified for the election.

Ruling snapshot

• Question: Could the purchaser file its § 338(g) election after the deadline?
• Outcome: A 45-day extension was granted, subject to filing and tax liability conditions.
• Key authorities: IRC § 338; Treas. Reg. §§ 1.338-2(d), 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200723024
Third Party Communication: None
Release Date: 6/8/2007
Date of Communication: Not Applicable
Index Number: 338.01-02, 9100.06-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:CORP:01
PLR-152491-06
Date:
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February 27, 2007

LEGEND:

Purchaser = --------------------------------------------------------------------------------
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Target = --------------------------------------------
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Seller = ---------------------------------
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Date A = --------------------

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

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

Company Official = ---------------------------
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Dear -----------------:

This letter responds to a letter dated September 25, 2006, updated on January 30, 2007, submitted on behalf of Purchaser, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election. Purchaser is requesting an extension to file a "§ 338 election" under § 338(g) with

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respect to Purchaser's acquisition in one transaction of the stock of Target (sometimes hereinafter referred to as the "Election"), on Date B. Additional information was received on February 19, 2007. The material information is summarized below.

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

It is represented that prior to the acquisition of Target, Target was a controlled foreign corporation within the meaning of § 957(a) and Target was not a passive foreign investment company or a foreign personal holding company at any time during the portion of its taxable year that ended on the acquisition date (as defined in
§ 338(h)(2)).

The Election was due on Date C, 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) has not expired for Purchaser'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 six months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code (the “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 301.9100-2 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 Purchaser to file the Election, provided Purchaser acted

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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 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 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 Purchaser 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 Purchaser to file the Election with respect to the acquisition of the stock of Target.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, Purchaser 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, instead of attaching a copy of this letter to the returns, taxpayers filing their returns electronically may attach a statement to their returns that provides the date and control number of the letter ruling.

The above extension of time is conditioned on the taxpayers' (Purchaser’s 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

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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 taxpayer and its representative. 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.

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)