PLR 200813034: Buyer gets 45 days to file missed stock purchase election

Plain-English summary

A corporate parent acquired all the stock of a foreign target through a disregarded subsidiary but missed the deadline for a section 338(g) election. The IRS found that the parent reasonably relied on a tax professional, requested relief before the IRS discovered the omission, and met the standards for an extension. It gave the parent 45 days from the letter date to file Form 8023 and required affected parties to file or amend relevant returns within 120 days. Relief was conditioned on their aggregate tax liability being no lower than it would have been with a timely election. The IRS did not decide whether the purchase actually met the qualified-stock-purchase rules.

Ruling snapshot

• Question: May the parent file a late section 338(g) election for its foreign target acquisition?
• Outcome: Approved, with a 45-day filing deadline and conditions on returns and tax liability.
• Key authorities: IRC § 338(g); 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: 200813034
Third Party Communication: None
Release Date: 3/28/2008
Date of Communication: Not Applicable
Index Number: 9100.06-00, 338.01-02
Person To Contact:
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----------------------------------------------- Telephone Number:
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Refer Reply To:
CC:CORP:06
PLR-143395-07
Date:
December 04, 2007

TY: -------

LEGEND

Parent = --------------------------
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Purchaser = -----------------------------------------------
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Target = -------------------------------
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Seller = -----------------------

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

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

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

Country = ---------------

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

This letter responds to a letter dated August 14, 2007, 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) (sometimes hereinafter referred to as the “Election”) with respect to Parent’s acquisition, through Purchaser, of the stock of Target on Date B. Additional information was received in letters dated October 31 and November 6, 2007. The material information is summarized below.

Parent is a privately held holding company that is treated as a C corporation for U.S. tax purposes, and is the parent of a consolidated group. Parent holds 100% of the membership interest in Purchaser, a single member LLC that is treated, by default, as a disregarded entity for U.S. tax purposes. Target was formed under the laws of Country by an unrelated party.

Prior to the transaction, 100% of the shares of Target were held by a Country resident, Seller. On Date A, Purchaser entered into a purchase agreement for Purchaser to acquire all of the Target stock from Seller. On Date B, the agreement was amended and Purchaser acquired all of the stock of Target from Seller in exchange for cash. It is represented that Parent’s acquisition, through Purchaser, 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 is unable to 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

The Election was due on Date C, 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 the Parent consolidated group’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."
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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, Company Official, and Tax Professional 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 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 Target, 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
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letter and a copy of Form 8883 must be attached to the any tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy the requirement of attaching a copy of this letter by attaching a statement to their return that provides the date and control number of the letter ruling.

The above extension of time is conditioned on the taxpayers' (the Parent consolidated group’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.
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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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