PLR 1037013: IRS granted more time for a section 338(h)(10) election

Plain-English summary

The IRS granted Purchaser and Sellers an extension of time to file a joint section 338(h)(10) election for Purchaser's acquisition of an S corporation. The election was not filed by the due date, but the parties showed that they acted reasonably and in good faith, including reliance on a qualified tax professional. The IRS granted 45 days to file Form 8023 and 120 days to file or amend affected returns, subject to conditions concerning the parties’ aggregate tax liability. The ruling does not determine whether the stock acquisition otherwise qualifies for section 338(h)(10) treatment.

Ruling snapshot

• Question: Could Purchaser and Sellers obtain more time to make the section 338(h)(10) election?
• Outcome: Approved
• Key authorities: IRC §§ 338, 338(d)(3), 338(g), 338(h)(10), 6501, and 1504; Treas. Reg. §§ 301.9100-1, 301.9100-2, 301.9100-3, and 1.338(h)(10)-1(c)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201037013 Third Party Communication: None
Release Date: 9/17/2010 Date of Communication: Not Applicable
Index Numbers: 338.01-02, 9100.07-00
Person To Contact:
----------------------------------------------------------- ---------------------, ID No. -----------------
----------------------------------------- Telephone Number:
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-------------------- Refer Reply To:
------------------------------------------- CC:CORP:B03
PLR-110251-10
Date:
June 16, 2010

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

Merger Sub = -----------------------------------------------------

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

Sellers = --------------------

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PLR-110251-10 2

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

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Company Official = ------------------------------------------------------
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State X = -------------

State Y = --------------------

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

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

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

Dear ---------------:

    This letter responds to a letter dated February 18, 2010, submitted on behalf of

Purchaser and Sellers, requesting an extension of time under §301.9100-3 of the
Procedure and Administration Regulations to file an election. Purchaser and Sellers are
requesting an extension to file a “§338(h)(10) election” under §§338(g) and 338(h)(10)
of the Internal Revenue Code and §1.338(h)(10)-1(c) of the Income Tax Regulations
with respect to Purchaser’s acquisition of the stock of Target (sometimes hereinafter
referred to as (the “Election”), on Date B. Additional information was received in letters
dated May 3, June 4, June 9, and June 11, 2010. The material information is
summarized below.

    Purchaser, a State X corporation, is the common parent of an affiliated group that

files a consolidated income tax return for Federal income tax purposes. Target, a State
Y corporation, was an S corporation within the meaning of §1361. All the stock of
Target was owned by Sellers (individuals). Target did not have any subsidiaries.

   On Date A, Purchaser, Merger Sub, a wholly-owned subsidiary of Purchaser, and

a representative of the Target shareholders, entered into an agreement for Purchaser to
acquire all of the Target stock. The transaction was structured as a reverse subsidiary
merger whereby Merger Sub merged into Target, with Target surviving the merger. On
Date B, Purchaser acquired all of the stock of Target from Sellers in a fully taxable
transaction pursuant to the Agreement and Plan of Merger. It is represented that
PLR-110251-10 3

Purchaser's acquisition of the stock of Target qualified as a “qualified stock purchase,”
as defined in §338(d)(3).

   The Date A agreement required the filing of the Election which 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 a valid 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
consolidated group, Target’s, or Sellers’ taxable years in which the acquisition occurred,
the taxable year 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."

  Section 1.338(h)(10)-1(c)(1) permits the purchasing corporation and sellers of an

S corporation to elect jointly to treat the target corporation as deemed to sell all of its
assets and distribute the proceeds in complete liquidation. A §338(h)(10) election may
be made for target only if purchaser acquires stock meeting the requirements of
§1504(a)(2) from a selling consolidated group, a selling affiliate, or the S corporation
shareholders in a qualified stock purchase. Section 1.338(h)(10)-1(c)(1).

   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(h)(10)-1(c)(3)). Therefore, the Commissioner has discretionary authority under
§301.9100-3 to grant an extension of time for Purchaser and Sellers to file the Election,
provided Purchaser and Sellers show they 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.
PLR-110251-10 4

    Information, affidavits, and representations submitted by Purchaser, Sellers,

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, and that 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) and (v).

     Based on the facts and information submitted, including the representations

made, we conclude that Purchaser and Sellers have shown they 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 and Sellers 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 and Sellers

must file the Election on Form 8023 in accordance with §1.338(h)(10)-1(c) 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(h)(10) 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.

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

consolidated group, Sellers’, 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/sale” of the Target

stock qualifies as a "qualified stock purchase" under §338(d)(3); (2) whether the
“acquisition/sale” of Target stock qualifies for §338(h)(10) treatment; or (3) any other tax
consequences arising from the Election.
PLR-110251-10 5

   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.

   Purchaser must provide Sellers with a copy of this letter. 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)