Individual receives 60 days to file a late family-attribution waiver for a stock redemption

Plain-English summary

An individual was treated as owning corporate stock held by a grantor trust, while family members also owned or were treated as owning stock in the corporation. The trust's stock was redeemed for cash and promissory notes, and the individual intended the redemption to qualify as a complete termination of interest under section 302(b)(3). That treatment required a statement waiving family attribution under section 302(c)(2), but a valid statement was not filed on time. The IRS found that the individual reasonably relied on a qualified tax professional and requested relief before the IRS discovered the failure. It granted 60 days to file the election by amending the relevant return, subject to a condition preventing lower aggregate tax liability than if the election had been timely filed. The IRS did not decide whether the individual substantively qualified for the waiver.

Ruling snapshot

• Question: May an individual file a late section 302(c)(2) family-attribution waiver for a redemption intended to terminate the individual's corporate ownership?
• Outcome: approved, with the election due within 60 days
• Key authorities: IRC §§ 302 and 318; Treas. Reg. §§ 1.302-4, 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                          Department of the Treasury
                                                  Washington, DC 20224

Number: 201805011                                 Third Party Communication: None
Release Date: 2/2/2018                            Date of Communication: Not Applicable
Index Number: 9100.22-00, 302.05-01
                                                  Person To Contact:
----------------                                  ---------------------------, ID No. ---------------
----------------------------                      -----------------------------------------------------
----------------------------------------          Telephone Number:
                                                  --------------------
                                                  Refer Reply To:
                                                  CC:CORP:2
                                                  PLR-120708-17
                                                  Date:
                                                  November 02, 2017



Legend

Taxpayer                                   = ----------------
                                             ----------------------------
                                             -------------------------------
                                             ----------------------

Corporation                                = ------------------

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

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



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

This letter responds to a letter dated June 30, 2017, submitted on behalf of Taxpayer,
requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to file an election. Taxpayer is requesting an extension to file
the statement required by § 1.302-4(a) of the Income Tax Regulations (“Election”) to
waive family attribution under section 302(c)(2) with respect to a redemption of
Corporation’s shares on Date 1. Additional material was submitted in a letter dated
October 24, 2017. The material information submitted is summarized below.

Taxpayer is a domestic individual. For federal income tax purposes, Taxpayer is treated
as the owner of stock of Corporation held by a grantor trust (Taxpayer’s Trust).
Members of Taxpayer’s family also directly own stock of Corporation or are treated as

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owning Corporation stock held by separate trusts. On Date 1, all of Taxpayer’s Trust’s
Corporation stock was redeemed for a combination of cash and promissory notes.

In order to qualify the redemption as a complete termination of Taxpayer’s interest in
Corporation under section 302(b)(3), Taxpayer intended to file the Election, 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. It has been
represented that Taxpayer is not seeking to alter a return position for which an
accuracy-related penalty has been or could be imposed under section 6662.

Section 302(a) provides that if a corporation redeems its stock and paragraph (1), (2),
(3), (4), or (5) of section 302(b) applies, such redemption shall be treated as a
distribution in part or full payment in exchange for the stock. Section 302(b)(3) provides
that a complete redemption of all of the stock owned by a shareholder will be treated as
a distribution in part or full payment in exchange for the stock under section 302(a).

Section 302(c)(1) provides that, for the purposes of section 302, the attribution rules of
section 318 generally apply. Generally, section 318(a)(2)(B)(i) provides that stock
owned, directly or indirectly, by or for a trust is considered as owned by its beneficiaries
in proportion to their actuarial interests in the trust. Section 318(a)(2)(B)(ii) provides that
stock owned, directly or indirectly, by or for any portion of a grantor trust of which a
person is considered the owner under subpart E of part I of subchapter J is treated as
owned by the person.

Under section 318(a)(1)(A), an individual is considered to own stock owned, directly or
indirectly, by or for his spouse, children, grandchildren, and parents. Section 302(c)(2)
provides that section 318(a)(1) shall not apply in determining whether a redemption is a
complete termination of interest as described in section 302(b)(3) if (1) immediately after
the distribution the distributee has no interest in the corporation, other than as a
creditor; (2) the distributee does not acquire any such interest (other than stock
acquired by bequest or inheritance) within 10 years from the date of such distribution;
and (3) the distributee, at such time and in such manner as the Secretary by regulations
prescribes, files an agreement to notify the Secretary of any acquisition of any such
interest and to retain necessary records.

Section 1.302-4(a) of the Income Tax Regulations prescribes such time and manner.
Generally, the distributee must provide a statement in which the distributee must
represent that (1) the distributee (or related person) has not acquired, other than by
bequest or inheritance, any interest in the corporation (as described in section
302(c)(2)(A)(i)) since the distribution, and (2) the distributee (or related person) will
notify the Internal Revenue Service of any acquisition, other than by bequest or
inheritance, of such an interest in the corporation within 30 days after the acquisition, if
the acquisition occurs within 10 years from the date of the distribution. The distributee

PLR-120708-17                                   3

must include such statement on or with the distributee’s first return for the taxable year
in which the distribution described in section 302(b)(3) occurs. § 1.302-4(a).

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.
§ 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. § 301.9100-3(a).

In this case, the time for filing the Election is fixed by the regulations (i.e., § 1.302-4(a)).
Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an
extension of time for Taxpayer to file the Election, provided Taxpayer shows 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.
Information, affidavits, and representations submitted by Taxpayer and Tax Professional
explain the circumstances that resulted in the failure to timely file the Election. The
information establishes that Taxpayer reasonably relied on a qualified tax professional
who failed to make, or advise Taxpayer to make, a valid 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 Taxpayer 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 sixty (60) days
from the date on this letter, for Taxpayer to file the Election with respect to the
redemption of Corporation’s shares on Date 1. Taxpayer must amend its tax return for
the tax year including Date 1 to attach the election statement to Taxpayer’s tax return.
Taxpayer must also attach a copy of this letter to such return. Alternatively, if Taxpayer
files its return electronically, it may satisfy this latter requirement by attaching a
statement to its return for the tax year including Date 1 that provides the date on and
control number (PLR-120708-17) of this ruling.

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

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bene if the Election had been timely filed (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 applicable Director’s office upon audit of the
federal income tax returns involved.

We express no opinion with respect to whether, in fact, Taxpayer qualifies substantively
to file the Election. In addition, we express no opinion as to the tax effects or
consequences of filing the Election late under the provisions of any other section of the
Code or regulations, or as to the tax treatment of any conditions existing at the time of,
or effects 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 have relied on certain
statements and representations made by Taxpayer and Tax Professional. 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 otherwise
would be applicable, if any, continue to 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.

In accordance with the Power of Attorney on file with this office, copies of this letter are
being sent to your authorized representatives.

                                        Sincerely,



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




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