Late section 336(e) election receives filing relief

Plain-English summary

A purchaser acquired all stock of an S corporation in a transaction represented to be a qualified stock disposition. The target and its shareholder had timely signed a binding agreement to make an IRC § 336(e) election, but the target did not timely file its return or the required election statement because the parties relied on a tax professional. The IRS found that the parties acted reasonably and in good faith and that relief would not prejudice the government. It granted 45 days to file the election statement and 120 days for all relevant parties to file or amend returns consistently with the election, subject to the condition that aggregate tax liability not be reduced by the late filing.

Ruling snapshot

• Question: Could the parties receive additional time to file the election statement for a section 336(e) stock-disposition election?
• Outcome: Approved
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201546011 Third Party Communication: None
Release Date: 11/13/2015 Date of Communication: Not Applicable
Index Number: 9100.22-00, 336.05-00
Person To Contact:
----------------- ------------------------, ID No. --------------
------------------------------------------------------ Telephone Number:
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------------------------------------------- Refer Reply To:
---------------------------------- CC:CORP:B01
PLR-117725-15
Date:
August 12, 2015

LEGEND

Purchaser =

S Corporation Target =

S Corporation Shareholder =

State A =

State B =

Date 1 =

Date 2 =

Company Official =

Tax Professional =

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

This letter responds to a letter dated May 22, 2015, submitted on behalf of Purchaser, S
Corporation Shareholder, and S Corporation Target, requesting an extension of time
under § 301.9100-3 of the Procedure and Administration Regulations to file an election.
Purchaser, S Corporation Shareholder, and S Corporation Target are requesting an
extension of time for S Corporation Target to file an election statement under § 1.336-
2(h)(3)(iii) of the Income Tax Regulations (“Election Statement”) with respect to
Purchaser’s acquisition of the stock of S Corporation Target from S Corporation
Shareholder on Date 1. The material information submitted is summarized below.

On Date 1, Purchaser, a State A limited partnership, acquired all of the stock of S
Corporation Target, an S corporation incorporated in State B, from S Corporation
Shareholder in exchange for cash (the “Disposition”). It has been represented that the
Disposition qualified as a “qualified stock disposition” as defined in § 1.336-1(b)(6).

Prior to the due date for S Corporation Target’s tax return for the taxable year that
included Date 1 (“Year 1”), S Corporation Shareholder and S Corporation Target
entered into a written, binding agreement providing that a section 336(e) election would
be made with respect to the Disposition, but S Corporation Target did not timely file its
tax return for Year 1. Subsequently, this request was submitted, under § 301.9100-3 of
the Procedure and Administration Regulations, for an extension of time to file the
Election Statement. It has been represented that none of Purchaser, S Corporation
Shareholder, or S Corporation Target is seeking to alter a return position for which an
accuracy-related penalty has been or could be imposed under section 6662.

Regulations promulgated under section 336(e) permit certain sales, exchanges, or
distributions of stock of a corporation to be treated as asset dispositions if: (1) the
disposition is a “qualified stock disposition” as defined in § 1.336-1(b)(6); and (2) a
section 336(e) election is made.

Section 1.336-2(h)(3) provides that a section 336(e) election for an S corporation target
is made by: (i) all of the S corporation shareholders, including those who do not dispose
of any stock in the qualified stock disposition, and the S corporation target entering into
a written, binding agreement, on or before the due date (including extensions) of the
Federal income tax return of the S corporation target for the taxable year that includes
the disposition date, to make a section 336(e) election; (ii) the S corporation target
retaining a copy of the written agreement; and (iii) the S corporation target attaching the
section 336(e) election statement, described in § 1.336-2(h)(5) and (6), to its timely filed
(including extensions) Federal income tax return for the taxable year that includes the
disposition date.

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).

The time for filing the Election Statement is fixed by the regulations (i.e., § 1.336-
2(h)(3)(iii)). Therefore, the Commissioner has discretionary authority under § 301.9100-
3 to grant an extension of time for S Corporation Target to file the Election Statement,
provided Purchaser, S Corporation Shareholder, and S Corporation Target 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 Purchaser, S Corporation
Shareholder, S Corporation Target, Company Official, and Tax Professional explain the
circumstances that resulted in the failure to timely file the Election Statement. The
information establishes that Purchaser, S Corporation Shareholder, and S Corporation
Target reasonably relied on a qualified tax professional who failed to file, or advise them
to timely file, the Election Statement, and that the request for relief was filed before the
failure to file the Election Statement 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 Purchaser, S Corporation Shareholder, and S Corporation Target have
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 S Corporation Target to file the Election Statement with respect to
the Disposition.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, S Corporation Target must file the
Election Statement in accordance with § 1.336-2(h). The Election Statement must be
attached to S Corporation Target’s tax return for Year 1. In addition, a copy of this letter
must be attached to S Corporation Target’s return. Alternatively, if S Corporation Target
files its return electronically, it may satisfy the requirement of attaching a copy of this
letter to the return by attaching a statement to its return that provides the date and
control number (PLR-117725-15) of this letter ruling.

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 consistently with the making of a section 336(e) election for the taxable year
in which the transaction was consummated (and for any other affected taxable year).

The above extension of time is conditioned on the taxpayers’ (i.e., Purchaser’s, S
Corporation Target’s, and S Corporation Shareholder’s) tax liability (if any) being not
lower, in the aggregate, for all years to which the section 336(e) election applies than it
would have been if the Election Statement had been timely filed (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 Disposition qualifies as a “qualified stock
disposition”; or (2) any other tax consequences arising from the section 336(e) election.

In addition, we express no opinion as to the tax consequences of filing the return or
Election Statement 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 Statement late that are not specifically set forth in the
above ruling. For purposes of granting relief under § 301.9100-3, we have 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 Statement, 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______
Ken Cohen
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel (Corporate)

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