PLR 200735002: Foreign purchaser gets 45 days to file a section 338 election

Plain-English summary

A foreign purchaser acquired all the stock of a foreign corporation through a disregarded entity but missed the deadline for a section 338(g) election, which can treat a stock purchase as an asset acquisition for tax purposes. The purchaser said it had relied on a qualified tax professional who failed to make or advise it to make the election. The IRS granted 45 days to file Form 8023 and required affected parties to file or amend relevant returns within 120 days. The extension is conditioned on the parties' combined tax liability being no lower than it would have been with a timely election. The IRS did not determine whether the stock purchase qualified under section 338.

Ruling snapshot

• Question: Could the purchaser file its section 338(g) election after the deadline?
• Outcome: Approved: 45 days to file the election, subject to the stated conditions.
• Key authorities: IRC § 338; 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: 200735002
Third Party Communication: None
Release Date: 8/31/2007
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:B02
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PLR-112413-07
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Date:
May 24, 2007
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LEGEND

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

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

Company Official = --------------------------
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Tax Professional = -------------------------
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Dear ----------------:

This letter responds to a letter dated March 7, 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 respect to the acquisition of the stock of Target (sometimes hereinafter referred to as the “Election”), on Date A. Additional information was received in a letter dated May 21, 2007. The material information is summarized below.

Purchaser is a foreign corporation which owns 100% of Acquirer, a foreign entity disregarded as separate from Purchaser for U.S. Federal income tax purposes. Target is a foreign entity treated as a corporation for U.S. Federal income tax purposes.

On Date A, Acquirer and Seller entered into a sale and purchase agreement pursuant to which Acquirer acquired all of the stock of Target from Seller in exchange for cash. Prior to the purchase, neither Purchaser nor Acquirer owned any stock of Target. It is represented that the acquisition of the stock of Target qualified as a "qualified stock purchase," as defined in § 338(d)(3).

Target was not a controlled foreign corporation as defined in §957 for its taxable year that includes the acquisition date (as defined in § 338(h)(2)). However, Target does not represent that it was not a passive foreign investment company at any time during the portion of its taxable year that ends on the acquisition date (as defined in § 338(h)(2)).

Purchaser 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 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 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
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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 regulations (see § 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 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, Company Official, and Tax Professional explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that Purchaser reasonably relied on a qualified tax professional who failed to make, or advise Purchaser 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 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, as described above.

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), including, as necessary, Forms 8883 and 5471 and supplemental statements. A copy of this letter must be attached to the returns. Alternatively, taxpayers filing their returns electronically may satisfy this latter requirement by attaching a statement to their return that provides the date and control number of this letter ruling.
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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 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.

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

Sincerely,

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