Foreign stock purchaser receives more time for a section 338 election

Plain-English summary

A U.S. parent corporation's controlled foreign corporation acquired all the stock of an unrelated foreign target for cash. The parent intended to make a section 338(g) election, and the relevant returns were filed consistently with that treatment, but a qualified tax professional failed to make or advise the parent to make the election. The parent requested relief before the IRS discovered the omission and was not trying to change a position that could trigger an accuracy-related penalty. The IRS found reasonable reliance, good faith, and no prejudice to the government. It granted 45 days to file Form 8023 and required relevant parties to amend affected returns within 120 days. Relief was conditioned on aggregate tax liability, including the time value of money, not being lower than if the election had been timely made.

Ruling snapshot

• Question: Could the U.S. parent receive an extension to make a section 338(g) election for its foreign subsidiary's stock acquisition?
• Outcome: Approved, with 45 days to file the election and 120 days to amend affected returns
• Key authorities: IRC § 338; 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: 201510037 Third Party Communication: None
Release Date: 3/6/2015 Date of Communication: Not Applicable
Index Number: 338.01-02, 9100.06-00
Person To Contact:
--------------------------------------- -----------------, ID No. ----------------
-------------- Telephone Number:
-------------------------------------------- ------------------
------------------------------------------- Refer Reply To:
CC:CORP:1
PLR-127302-14
Date:
November 13, 2014

LEGEND

Parent = ---------------

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

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

Seller = ------------------------------

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

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

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

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

Year 1 = ------

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

  This letter responds to a letter dated July 16, 2014, submitted on behalf of

Parent, the common parent of a consolidated group (“Parent Group”) and the U.S.
shareholder of Purchaser, the foreign purchasing corporation, requesting an extension

PLR-127302-14 2

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) with
respect to Purchaser’s acquisition of the stock of Target on Date A (sometimes
hereinafter referred to as the “Election”). The material information is summarized
below.

                                RELEVANT FACTS

   Parent is the common parent of a consolidated group. Parent is also the United

States shareholder (as defined in § 951(b)) of Purchaser. Target was an unrelated
foreign corporation.

   On Date A, Purchaser acquired all of the stock of Target from Seller in exchange

for cash. It is represented that Purchaser’s acquisition of the stock of Target qualified
as a “qualified stock purchase,” as defined in § 338(d)(3). Parent has represented that
the Parent Group’s Federal income tax return for Year 1, the year in which relief is
requested to make the Election, and all subsequent tax returns were filed consistent
with the Election having been made.

   Target was not a controlled foreign corporation, a passive foreign investment

company, 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 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.

   Parent 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. Parent has
represented that it is not seeking to alter a return position for which an accuracy-related
penalty has been or could be imposed under § 6662.

   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.

PLR-127302-14 3

    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 to the satisfaction of
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
Parent shows that it acted reasonably and in good faith, the requirements of
§§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief would 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 to
timely file a valid Election. The information establishes that Parent reasonably relied on
a qualified tax professional who failed to make, or advise Parent 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 Parent 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 Parent 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, Parent must file the

Election on Form 8023, in accordance with §§ 1.338-2(d) and (e)(3) 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,

having filed their returns consistent with the Election having been made, must amend
any tax return to which it is relevant by attaching a copy of this letter and a copy of Form
8023. 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-127302-14) of the letter ruling.

  The above extension of time is conditioned on the taxpayers’ (Parent’s

consolidated group, 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

PLR-127302-14 4

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.

    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 representative.

                                    Sincerely,



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

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