Late section 338(h)(10) election receives 45-day extension

Plain-English summary

A purchasing corporation acquired all the stock of a target in a transaction represented to be a qualified stock purchase, then later merged downstream into the target. The purchasing and selling corporations intended to make a joint section 338(h)(10) election so the stock purchase would be treated as a deemed asset sale and liquidation, but a qualified tax professional failed to make or recommend the election on time. The IRS found that the taxpayers acted reasonably and in good faith and that relief would not prejudice the government. It granted 45 days to file Form 8023 and 120 days for all affected parties to file or amend returns consistently with the election. Relief was conditioned on the groups' aggregate tax liability not being lower than it would have been with a timely election, taking the time value of money into account.

Ruling snapshot

• Question: Should the taxpayers receive extra time under section 301.9100-3 to file their intended section 338(h)(10) election?
• Outcome: Approved, with 45 days to file the election and 120 days to conform affected returns
• Key authorities: IRC §§ 338(d)(3), 338(h)(10), and 1504(a)(2); Treas. Reg. §§ 1.338(h)(10)-1 and 301.9100-1 through -3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201530017 Third Party Communication: None
Release Date: 7/24/2015 Date of Communication: Not Applicable
Index Numbers:9100.07-00, 338.01-02
Person To Contact:
--------------------, ID No. ----------------
-------------------------------------------------- Telephone Number:
----------------------------------------- --------------------
------------------- Refer Reply To:
------------------------------- CC:CORP:B03
PLR-146412-14
Date:
April 20, 2015

Old Purchasing Corporation = ---------------------------------
------------------------------------------------------
-------------------------------

Acquirer = ---------------------------

Selling Corporation = -----------------------------------------------------

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

Minority Shareholders = -----------------------------

                                                           ------------------------------------------------------
                                                           ---------------

                                                            -------------------------

z = ---

Company Official = ----------------------------------------------------
PLR-146412-14 2

                                              ------------------------------

State X = ------------

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

Date 1 = ------------------

Date 2 = --------------------

Date 3 = ------------------

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

   This letter responds to a letter dated December 18, 2014, submitted on behalf of

Old Purchasing Corporation (by its substitute agent, Target) and Selling Corporation
(“Taxpayers”), requesting an extension of time under § 301.9100-3 of the Procedure
and Administration Regulations to file an election. Taxpayers 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 concerning Old
Purchasing Corporation’s acquisition of the stock of Target (sometimes hereinafter
referred to as the “Election”) on Date 1. Additional information was submitted in a letter
dated April 15, 2015. The material information is summarized below.

    Old Purchasing Corporation, a State X corporation, was the common parent of

an affiliated group that filed a consolidated Federal income tax return. Target, a State Y
corporation, was a member of Selling Corporation’s consolidated group before Date 1.
Selling Corporation owned z percent of Target stock and Minority Shareholders owned
the remainder.

    Old Purchasing Corporation acquired all of the stock of Target on Date 1 in a fully

taxable transaction pursuant to a stock purchase and exchange agreement. Taxpayers
have represented that Old Purchasing Corporation’s acquisition of the stock of Target
qualified as a “qualified stock purchase,” as defined in § 338(d)(3). Taxpayers have
also represented that all relevant returns have been filed consistent with making the
Election.

   On Date 3, Old Purchasing Corporation merged downstream into Target with

Target surviving. Taxpayers have represented that Target became the substitute agent
for Old Purchasing Corporation when Old Purchasing Corporation went out of existence
in the merger.

   Taxpayers intended to file the Election. The Election was due on Date 2, but for

various reasons a valid Election was not filed. After the due date for the Election, it was
PLR-146412-14 3

discovered that a valid election was not filed. Taxpayers then sought an automatic
extension of time to file the Election pursuant to Section 5 of Rev. Proc. 2003-33, 2003-
1 C.B. 803. However, Taxpayers may not have obtained such an automatic extension.
Subsequently, this request was submitted, under § 301.9100-3, for an extension of time
to file the Election. Taxpayers have represented that they are not seeking to alter a
return position for which an accuracy-related penalty resulting from or related to the
Election has been or could be imposed under § 6662 at the time of this request for relief
(taking into account any qualified amended return filed within the meaning of § 1.6664-
2(c)(3)).

   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 338(h)(10) permits the purchasing and selling corporations 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 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(h)(10)-1(c)(3)). Therefore, the Commissioner has discretionary authority under
§ 301.9100-3 to grant an extension of time for Taxpayers to file the Election, provided
Taxpayers 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.

  Information, affidavits, and representations submitted by Target, Selling

Corporation, and Company Official explain the circumstances that resulted in the failure
PLR-146412-14 4

to timely file a valid Election. The information establishes that Taxpayers reasonably
relied on a qualified tax professional who failed to make, or advise Taxpayers 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 Taxpayers 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
Taxpayers’ to file the Election concerning the acquisition of the stock of Target, as
described above.

   WITHIN 45 DAYS OF THE DATE ON THIS LETTER, Taxpayers 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 (PLR-146412-14) of the letter ruling.

    The above extension of time is conditioned on Taxpayers’ and the members of

their respective consolidated groups, 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 tax liabilities 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/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.

   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
PLR-146412-14 5

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.

   Target must provide Selling Corporation 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, copies of this letter are

being sent to your authorized representatives.

                                       Sincerely,


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

cc: