PLR 1033029: Extension granted to make a section 338(g) election

Plain-English summary

The IRS granted a purchaser 45 days to file a late section 338(g) election for its acquisition of a foreign corporation’s stock. The purchaser represented that the acquisition was a qualified stock purchase, intended to make the election, and discovered after the deadline that a valid election had not been filed. The IRS found that the purchaser acted reasonably and in good faith and that relief would not prejudice the government. The relief required filing Form 8023 within 45 days, affected parties to file or amend relevant returns within 120 days, and compliance with conditions concerning aggregate tax liability.

Ruling snapshot

• Question: Could the purchaser receive extra time to file a section 338(g) election after acquiring a foreign corporation’s stock?
• Outcome: approved
• Key authorities: IRC §§ 338, 6501, and 6110; Treas. Reg. §§ 1.338-2 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201033029
Release Date: 8/20/2010
Index Numbers: 338.01-02, 9100.06-00

---------------------------------------------------- Person To Contact:
------------------------------------------------------------ -----------------------, ID No. -------------
-------- Telephone Number:
------------------------------------------------------ ---------------------
------------------------------- Refer Reply To:
CC:CORP:B01 –
PLR-155570-09
Date:
April 27, 2010

LEGEND

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

Sub 1 = -------------------------------------
------------------------

Sub 2 = --------------------------------------------------------------
------------------------

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

Seller 1 = -----------------------

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

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

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

Tax Professional = ---------------------------------------------------------------

Dear -------------
PLR-155570-09 -2-

    This letter responds to a letter dated December 8, 2009 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 Purchaser’s acquisition of the stock
of Target (sometimes hereinafter referred to as the “Election”), on Date A, through Sub

2. The material information is summarized below.

   Purchaser is directly and indirectly owned by United States and foreign investors.
   Purchaser wholly owns Sub 1. Purchaser and Sub 1 own all the stock of Sub 2. Sub 1
   and Sub 2 are disregarded entities for U.S. Federal income tax purposes. Target, a
   foreign corporation, was 99.9 percent owned by Seller 1. On Date A, Purchaser,
   through Sub 2, acquired all of the stock of Target owned by Seller 1 in exchange for
   cash. It is represented 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 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)).

   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
   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
   PLR-155570-09 -3-

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 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 the request for relief was filed
before the failure to make the Election was discovered by the Internal Revenue Service.
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, 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). A copy of this
letter and a copy of Form 8883 must be attached to 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.

   Purchaser must also deliver written notice of the election (and a copy of Forms

8023 and 8883, their attachments and instructions) to U.S. persons selling or holding
stock in Target. See § 1.338-2(e)(4).
PLR-155570-09 -4-

     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,


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