Successor receives 60 days for deemed-sale election

Plain-English summary

A foreign investment company transferred assets in a reorganization to a successor that elected regulated investment company status, then dissolved. The predecessor failed to attach the election for deemed-sale treatment under Treasury Regulation section 1.337(d)-7. The IRS found that the predecessor and successor reasonably relied on a tax professional and satisfied the regulatory-relief standards. It granted the successor 60 days to file the election for the predecessor, conditioned on aggregate tax liability not being lower than if the election had been timely made.

Ruling snapshot

• Question: May the successor make a late deemed-sale election for a C corporation's asset transfer to a RIC?
• Outcome: Approved
• Key authorities: Treas. Reg. §§ 1.337(d)-7, 301.9100-1, 301.9100-3; IRC §§ 368, 851, 1374

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201536004
Third Party Communication: None
Release Date: 9/4/2015
Date of Communication: Not Applicable
Index Number: 9100.22-00, 337.00-00
Person To Contact:
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Refer Reply To:
In Re: CC:CORP:B01
---------------------------------------------------------- PLR-107140-15 Date:
May 28, 2015

Taxpayer = ----------------------------------------------------
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Successor: = ------------------------------------------------------
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Taxable Year 1 = --------------------------

Country X = ------------

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

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

Company Official = ---------------
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Dear ----------------:

This letter responds to a letter dated February 10, 2015, submitted on behalf of Successor as successor-in-interest to Taxpayer, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election. In particular, Successor is requesting an extension of time to file an election under § 1.337(d)-7(c)(1) of the Income Tax Regulations (the “Election”) that was required to be filed with Taxpayer’s Federal income tax return for Taxable Year 1. The information submitted is summarized below.
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Taxpayer was a Country X investment company regarded as a corporation for Federal income tax purposes. On Date 1, Taxpayer transferred assets to Successor, a State Y entity, in a transaction treated as a reorganization under § 368(a)(1). Taxpayer subsequently dissolved. Successor has elected to be a regulated investment company (“RIC”) under § 851.

A deemed sale election under § 1.337(d)-7(c) for Taxpayer to recognize gain and loss on the transfer of assets to Successor, a RIC, was required to be attached to Taxpayer's return for the taxable year in which the deemed sale occurred. However, for various reasons, the Election was not 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) of the Code has not expired for Taxpayer's taxable year for which it desires to make the Election, or for any taxable years that would be affected by the Election, had it been timely filed.

Section 1.337(d)-7(a)(1) provides, in part, that if property owned by a C corporation becomes the property of a RIC in a conversion transaction (as defined in § 1.337(d)-7(a)(2)(ii)), then § 1374 treatment will apply (as described in § 1.337(d)-7(b)), unless the C corporation elects deemed sale treatment with respect to the conversion transaction.

Section 1.337(d)-7(a)(2)(i) defines a C corporation as a corporation that is not an S corporation, a RIC, or a REIT.

Section 1.337(d)-7(a)(2)(ii) defines the term conversion transaction as the qualification of a C corporation as a RIC or REIT or the transfer of property owned by a C corporation to a RIC or a REIT.

Section 1.337(d)-7(c)(5) provides that a deemed sale election is made by a C corporation by attaching a statement, as described therein, to its return for the taxable year in which the deemed sale occurs.

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 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. Section 301.9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of § 301.9100-2. Requests for relief under § 301.9100-3 will be granted when it is
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established 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., § 1.337(d)-7(c)(5)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Successor, on behalf of Taxpayer, to file the Election, provided Successor establishes that Successor and Taxpayer acted reasonably and in good faith, that the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied, and that granting relief will not prejudice the interests of the government.

Information, representations, and an affidavit submitted by Successor and Company Official explain the circumstances that resulted in the failure to timely file the Election. The information establishes that Taxpayer and Successor reasonably relied on a qualified tax professional, who failed to make, or advise Taxpayer (or Successor on behalf of Taxpayer) to make, the Election, and that the request for relief was filed before the failure to timely 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 affidavit submitted and the representations that have been made, we conclude that Successor has shown that Successor and Taxpayer 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 60 days from the date on this letter, for Successor, on behalf of Taxpayer, to file the Election.

The above extension of time is conditioned on Taxpayer'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 made timely (taking into account the time value of money). No opinion is expressed as to Taxpayer's tax liability for the years involved. A determination thereof will be made by the Director's office upon audit of the Federal income tax returns involved.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. Further, 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. Specifically, no opinion is provided concerning Taxpayer's Federal tax liability, if any, or Successor’s qualification as a RIC.
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For purposes of granting relief under § 301.9100-3, we relied on certain information and affidavit provided by Successor and Company Official under penalties of perjury. However, the Director should verify all essential facts. Moreover, notwithstanding that the extension is granted under § 301.9100-3 to file the Election, any penalties and interest that would otherwise be applicable still apply.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling.

Pursuant to a power of attorney on file with 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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