PLR 201214018: IRS grants more time to file a section 338 election

Plain-English summary

The IRS considered a request for more time to file a section 338 election after a foreign purchasing corporation acquired all of the stock of a controlled foreign corporation. The election was missed because the parent was unaware that it was necessary. The IRS found that the parent acted reasonably and in good faith and that granting relief would not prejudice the government. It granted 45 days to file the election and required related returns and notices within the periods stated in the ruling.

Ruling snapshot

• Question: Could the parent receive more time to file a section 338 election for the stock acquisition?
• Outcome: Approved
• Key authorities: IRC § 338; Treas. Reg. §§ 1.338-2 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201214018
Third Party Communication: None
Release Date: 4/6/2012
Date of Communication: Not Applicable
Person To Contact:
Index Number: 338.01-00, 9100.06-00
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Telephone Number:
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Refer Reply To:
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CC:CORP:B03
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Date:
January 06, 2012
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LEGEND:

Parent = ---------------------
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Purchaser = -----------------------------------------
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Target = ---------------------------------------------------------
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Date A = --------------------------

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

Company Official = --------------------
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Tax Professional = ------------------------------
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Dear -------------:
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This letter responds to a letter dated October 19, 2011, submitted on behalf of Parent, the common parent of a consolidated group and the U.S. shareholder of Purchaser, the foreign purchasing corporation, 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) of the Internal Revenue Code with respect to Purchaser's acquisition of the stock of Target on Date A (sometimes hereinafter referred to as the "Election"). Additional information was received in letters dated November 22 and December 28, 2011. The material information is summarized below.

Purchaser was a wholly-owned subsidiary of Parent. On Date A, Purchaser acquired all of the stock of Target, a controlled foreign corporation, in what Parent represents qualified as a "qualified stock purchase" as defined in § 338(d)(3). Parent also represents that Purchaser is a controlled foreign corporation as defined in § 957 (taking into account § 953(c)) and is not required under § 1.6012-2(g) (other than § 1.6012-2(g)(2)(i)(b)(2)) to file a United States income tax return for its taxable year that includes the acquisition date.

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. Parent has represented that neither Parent, Purchaser, nor Target is seeking to alter a return position for which an accuracy-related penalty has been or could have been imposed under § 6662 at the time Parent requested relief and the new position requires or permits a regulatory election for which relief is requested.

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 uses 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 to the satisfaction of
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the Commissioner 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 that 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 timely to file a valid Election. The information establishes that Parent was unaware of the necessity for 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 (iii).

Based on the facts and information submitted, including the representations made, we conclude that Parent has shown that 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.

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 years). 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.

Parent 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).

The above extension of time is conditioned on Parent's, Purchaser’s, and Target’s tax liability 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
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account the time value of money). No opinion is expressed as to the taxpayer's 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.

We express no opinion as to: (1) whether the acquisition of the Target stock qualified as a "qualified stock purchase" under § 338(d)(3); or (2) any 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 rulings. For purposes of granting relief under § 301.9100-3, we relied on certain statements and representations made by Parent, Company Official, and Tax Professional. The Director, however, 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 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)

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