CCA 1136020: A surviving LLC should use Form 872, not Form 977, to extend assessment time

Plain-English summary

This Chief Counsel Advice concludes that a surviving LLC formed through a merger should use Form 872 to extend the assessment period for the merged entities’ tax liabilities. The surviving LLC is primarily liable for those debts by operation of Delaware law and is not a transferee, so Form 977 is not the appropriate consent. The memorandum distinguishes primary successor liability from secondary transferee liability under section 6901 and relies on the merger statute and cited case law. The advice is limited to the facts and legal assumptions described in the memorandum.

Ruling snapshot

• Question: Whether the surviving LLC should execute Form 872 or Form 977 to extend the assessment statute expiration date.
• Outcome: Advice given.
• Key authorities: IRC §§ 368 and 6901; Treas. Reg. § 301.6901-1(b); E. & J. Gallo Winery v. Commissioner, 227 F.2d 699 (9th Cir. 1955).

Full text (IRS public release)

       Office of Chief Counsel
       Internal Revenue Service
       Memorandum
       Number: 201136020
       Release Date: 9/9/2011
       CC:PA:04:DWSkinner
       POSTF-113988-11

UILC: 6901.03-01

date: May 17, 2011

 to:   Victoria J. Kanrek
       Associate Area Counsel (Manhattan, Group 5)
       (Large Business & International)
       Attn: Michael Y. Chin

from: Mitchel S. Hyman
Senior Technician Reviewer, Branch 3
(Procedure & Administration)

subject: Consent to extend statute of limitation on assessment

       This memorandum responds to your request for advice based on the following facts.

       Pursuant to an Agreement and Plan of Merger, three Delaware LLCs (the merged
       LLCs) merged into a fourth Delaware LLC (the surviving LLC). Each elected to be
       taxed as a corporation. One or more of the merged LLCs is under examination for a
       period preceding the merger, and the surviving LLC wishes to extend the assessment
       statute expiration date (ASED).

       ISSUE

       In order to extend the ASED, should the surviving LLC execute Form 872, Consent to
       Extend the Time to Assess Tax, or Form 977, Consent to Extend the Time to Assess
       Liability at Law or in Equity for Income, Gift, and Estate Tax Against a Transferee or
       Fiduciary?

       CONCLUSION

       The surviving LLC should execute Form 872 in the manner specified in IRM
       4.10.13.3.3.4(1). It is not a transferee and should not execute Form 977.

POSTF-113988-11 2

DISCUSSION

The Agreement and Plan of Merger states that sec. 18-209 of the Delaware LLC Act
(DLLCA) controls the effects of the merger. It does not otherwise discuss the
assumption of the merged LLCs’ liabilities. DLLCA provides that the surviving LLC is
primarily liable for the merged LLCs’ debts; the debts "attach to the surviving or resulting
domestic limited liability company or other business entity, and may be enforced
against it to the same extent as if said debts, liabilities and duties had been incurred by
it." 6 Del. C. sec. 18-209(g). A successor corporation to a merger is not a transferee;
rather it assumes primary liability for the debts of the merged corporation as a
successor to the merged corporation by operation of law. E. & J. Gallo Winery v.
Commissioner, 227 F.2d 699, 703-704 (9th Cir. 1955); Stanton Brewery, Inc. v.
Commissioner, 176 F.2d 573, 575-576 (2d Cir. 1949); Commissioner v. Oswego Falls
Corp., 71 F.2d 673, 676 (2d Cir. 1934); see also IRM 4.10.13.3.3.4(1), IRM
4.11.52.4.1(3) ("a merger or consolidation, where the successor corporation is primarily
liable for the debts of the merged corporation, does NOT result in a transferee
situation."). Thus, the surviving LLC is primarily liable for the merged LLCs' tax debts,
and the consent Form 872 should be used.

Section 6901(h) defines the term transferee to include a distributee, and Treas. Reg.
§ 301.6901-1(b) provides that the shareholder of a dissolved corporation, the successor
of a corporation, a party to a section 368 reorganization, and all other classes of
distributees are transferees. The surviving LLC in this case received the assets of the
merged LLCs as a result of the merger, which suggests that it is a transferee. However,
section 6901 is strictly a procedural statute, and it does not impose substantive liability
on a transferee; applicable Federal and State law determines the transferee’s liability.
Commissioner v. Stern, 357 U.S. 39, 42-44 (1958); see also IRM 5.17.14.5.1(2).
In this case, the surviving LLC is not liable as a transferee of the merged LLCs’
property. Instead, it succeeded to the property and debts by operation of the DLLCA,
not by purchase or assignment or contractual assumption. Commissioner v. Oswego
Falls Corp., 71 F.2d 673, 676 (2d Cir. 1934) (further providing that secondary liability
arises only after exhaustion of remedies against the primary obligor, which suggests
that primary and transferee liability cannot coexist in a single surviving entity); see also
IRM 4.10.13.3.3.4(1), 4.11.52.4.1(3), 5.17.14.5.5(3)(b), 5.17.14.5.7(1), and
5.17.14.5.10.

Thus the surviving LLC’s liability is primary but not secondary (as a transferee). The
original ASED is close to running out, so a Form 872 should be executed. Although
section 6901(c) provides a longer ASED for a transferee, this option should not be
considered so long as the Form 872 is timely executed. 1

1
IRM 25.6.22.6.2.5(1) explains that state law generally renders the successor corporation of a merger
primarily liable for the debts of the predecessor corporation but then states that the merger agreement
may provide that the successor will be liable for the predecessor's tax debts, "in which case the successor
is liable as a transferee." As discussed above, we question whether the successor can be subject to both
primary and transferee liability. In this case, aside from the reference discussed above to Delaware law,
POSTF-113988-11 3

Accordingly, the surviving LLC should execute Form 872 to extend the ASED.

If you have any further questions or require further assistance, please contact David
Skinner at (202) 622-3630.

the merger agreement is entirely silent on the assumption or allocation of tax liabilities. Accordingly, the
argument for transferee liability on this contractual basis is exceedingly weak.