PLR 1035005: IRS granted extra time to make § 338(g) elections

Plain-English summary

The IRS considered a purchaser and an affiliate that acquired all the stock of a foreign target and its foreign subsidiaries and intended to make § 338(g) elections. The elections were not timely filed because the purchaser had relied on a qualified tax professional who failed to make or advise them to make the elections. The IRS granted 45 days to file the elections and 120 days to file or amend affected returns, provided the acquisition substantively qualified as a qualified stock purchase. The relief was conditioned on the taxpayers’ aggregate tax liability not being lower than it would have been if the elections had been timely made.

Ruling snapshot

• Question: May the purchaser and its affiliate make late § 338(g) elections for acquired stock?
• Outcome: Approved
• Key authorities: IRC §§ 338, 6501, 7701, and 6110; Treas. Reg. §§ 1.338-2(d) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201035005 Third Party Communication: None
Release Date: 9/3/2010 Date of Communication: Not Applicable
Index Number: 9100.06-00, 338.01-02
Person To Contact:
-------------------------------------------- -------------------------, ID No. ------------
------------------------------ Telephone Number:
----------------------------------------- --------------------
---------------------------------- Refer Reply To:
--------------------------------------------- CC:CORP:B05
---------------------- PLR-104829-10
-------------- Date:
May 28, 2010

LEGEND

ShareholderA = ----------------------

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

PurchaserAffiliate = ----------------------------------
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Target = --------------------------------

Target Affiliates = ------------------------------------------------------------------------

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LocationA = ---------------------------------

b = ---

c = --------------------------

DateA = --------------------------

DateB = -------------------------

DateC = --------------------------

DateD = -------------------

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

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

Dear --------------------------

   This letter responds to a letter dated January 25, 2010, submitted on behalf of

Purchaser and PurchaserAffiliate, requesting the Internal Revenue Service (“Service”)
to grant an extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure
and Administration Regulations to file an election. The extension is being requested for
Purchaser and PurchaserAffiliate to file a “§ 338 election” under § 338(g) of the Internal
Revenue Code (sometimes hereinafter referred to as the “Election”) with respect to
Purchaser’s and PurchaserAffiliate’s acquisition of the stock of Target and the deemed
acquisitions of the stock of Target Affiliates on DateA and DateB, respectively.
Additional information was received in a letter dated May 19, 2010. The material
information submitted is summarized below.

PLR-104829-10 5

  Purchaser, a corporation organized in LocationA, and PurchaserAffiliate, a

corporation organized in LocationB, are holding companies and members of an affiliated
group within the meaning of § 338(h)(5). More than 10% of the stock in Purchaser is
and has been held, directly or indirectly, by ShareholderA, a U.S. corporation. The
ShareholderA group has provided advice to Purchaser with regard to certain U.S. tax
matters.

    Target directly and/or indirectly holds all the outstanding stock in the b Target

Affiliates. Prior to the acquisition described herein, Target was a publicly held company.
Neither Target nor any of the Target Affiliates is a U.S. person.

   During the 12-month period that ended on DateB, Purchaser and

PurchaserAffiliate acquired for c cash all the outstanding stock in Target and, thus,
indirectly, all the outstanding stock in Target Affiliates. After DateA but prior to DateB,
PurchaserAffiliate was deemed to liquidate into Purchaser pursuant to a series of
“check-the-box” elections in which PurchaserAffiliate became disregarded as an entity
separate from its owner.

   Purchaser and PurchaserAffiliate intended to file the Election. The Election was

due on DateC but for various reasons a valid Election was not filed. Subsequent to DateC,
it was discovered that a valid Election had not been filed. Thereafter, this request was
submitted, under § 301.9100-3, for an extension of time to file a valid Election.

                                REPRESENTATIONS

    (a)   Purchaser and PurchaserAffiliate were members of an affiliated group

within the meaning of § 338(h)(5) and Purchaser’s and PurchaserAffiliate’s acquisition
of the stock of Target and the deemed acquisition of the stock of the Target Affiliates
constituted a “qualified stock purchase,” as defined in § 338(d)(3).

  (b)    As of the date the request for this ruling letter was submitted, the Service

had not contacted Purchaser, PurchaserAffiliate, Target, or any of the Target Affiliates
concerning Purchaser’s and PurchaserAffiliate’s failure to timely make the Election.

   (c)      The period of limitations on assessments under § 6501(a) of the Code has

not expired for any affected taxpayer: (i) for the taxable year in which the acquisition
occurred; (ii) for the taxable year for which the Election should have been filed; or (iii) for
any taxable years that would have been affected by the Election had it been timely filed.
The period of limitations on assessment for any taxpayer’s taxable year that would be
affected by the Election will expire no earlier than DateD.

                                APPLICABLE LAW

PLR-104829-10 6

   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;” 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.

   Section 301.9100-1(b) defines the term “regulatory election” as including an

election whose due date is prescribed by a regulation, revenue ruling, revenue
procedure, notice or announcement. 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 an election.

    Section 301.9100-1(a) describes the Commissioner’s authority to grant an

extension of time to make a regulatory election. Section 301.9100-2 provides automatic
extensions of time for making certain elections. Section 301.9100-3 provides
extensions of time for making regulatory elections that do not meet the requirements of
§ 301.9100-2. 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
§ 301.9100-1 to grant an extension of time for Purchaser and PurchaserAffiliate to file
the Election, provided Purchaser and PurchaserAffiliate show that they acted
reasonably and in good faith, that the requirements of §§ 301.9100-1 and 301.9100-3
are satisfied, and that granting relief will not prejudice the interests of the Government.

    Information, affidavits, and representations submitted by Purchaser,

PurchaserAffiliate, Company Official, and Tax Professional explain the circumstances
that resulted in the failure to timely file the Election. The information establishes that
Purchaser and PurchaserAffiliate reasonably relied on a qualified tax professional who
failed to make, or advise Purchaser and PurchaserAffiliate to make, the Election. In
addition, the information, representations, and affidavits submitted indicate that the
present request for relief was submitted to this office prior to the Service discovering
that the Election had not been timely made. See § 301.9100-3(b)(1)(i) and (v).

                 CONCLUSION AND GRANT OF EXTENSION

  Based solely on the facts, information, representations, and affidavits submitted,

we conclude that Purchaser and PurchaserAffiliate have shown that they acted

PLR-104829-10 7

reasonably and in good faith in failing to timely file the Election, the requirements of
§§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the
interests of the Government.

   Provided the stock acquisition qualifies substantively as a § 338(d)(3) “qualified

stock purchase,” we grant an extension of time under § 301.9100-3, until forty-five (45)
days from the date on this letter, for Purchaser and PurchaserAffiliate to file the Election
with respect to the acquisition of the stock of Target and the deemed acquisition of the
stock of the Target Affiliates.

  WITHIN 45 DAYS FROM THE DATE ON THIS LETTER, Purchaser and

PurchaserAffiliate 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 the 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 the 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 (PLR-104829-10) of this ruling letter.

    The above extension of time is conditioned on the taxpayers' 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 upon audit of the relevant Federal
income tax returns. Further, no opinion is expressed as to the Federal income tax
effect, if any, if it is determined that the amount of tax liability is lower. Section
301.9100-3(c).

                               CAVEAT

   We express no opinion: (1) as to whether the Acquisition qualifies substantively

as a “qualified stock purchase” under § 338(d)(3); or (2) as to any tax consequences
arising from the Election. Furthermore, except as expressly provided herein, no opinion
is expressed or implied concerning the tax consequences of any aspect of any matter or
item discussed or referenced in this ruling letter.

     In addition, we express no opinion as to the tax effects or other 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 effects

PLR-104829-10 8

resulting from, filing the Election late that are not specifically set forth in the above
ruling. 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.

     For purposes of granting this relief we relied upon certain information,

representations, and/or affidavits submitted by Purchaser, PurchaserAffiliate, Company
Official, and Tax Professional, with all submissions accompanied by a penalties 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, all of this material is
subject to verification on examination.

                        PROCEDURAL STATEMENTS

  This ruling letter is directed only to the person(s) who requested 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 in this matter, 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)