Companies received 60 days for a protective Section 336(e) election

Plain-English summary

A consolidated group's parent distributed all the stock of a target corporation in a transaction intended to qualify under Section 355 and potentially described in Section 355(d) or (e). The parties intended to make a protective Section 336(e) election but may not have timely filed the required election statement. They showed reasonable, good-faith reliance on a qualified tax professional and requested relief before the IRS discovered the failure. The IRS granted 60 days to complete the protective election and attach the ruling to the appropriate return. Relief was conditioned on aggregate tax liabilities not being lower than under a timely election. The IRS did not decide whether the stock distribution was a qualified stock disposition or address other tax consequences.

Ruling snapshot

• Question: Could the distributing corporation and target make a late protective Section 336(e) election for the stock distribution?
• Outcome: Approved, with a 60-day filing period and a no-lower-tax condition.
• Key authorities: IRC §§ 336(e) and 355; Treas. Reg. §§ 1.336-1(b)(6), 1.336-2(h) and (j), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201825014                                              Third Party Communication: None
Release Date: 6/22/2018                                        Date of Communication: Not Applicable
Index Number: 9100.22-00, 336.05-00
                                                               Person To Contact:
-------------------------------------                          ---------------------------, ID No. ---------------
---------------------------------------------                  -----------------
--------------------------                                     Telephone Number:
----------------------------                                   ----------------------
 -------------------------------------------                   Refer Reply To:
                                                               CC:CORP:1
                                                               PLR-130509-17
                                                               Date:
                                                               March 14, 2018




Legend


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

Corp X                     =         ------------------------------------------------
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Date 1                     =        ----------------------

Company Official &
Tax Professional           =         ----------------------
-----------------------------------------------------------------
-------------------------------------------------------------------------


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

This letter responds to a letter dated October 5, 2017, submitted on behalf of Target and
Corp X, requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the
Procedure and Administration Regulations to make an election. The extension for
Target and Corp X to make a protective election under § 1.336-2(h) of the Income Tax
Regulations (the “Protective Election”) with respect to Corp X’s disposition of all of the
stock of Target on Date 1. Additional information was submitted in a letter dated
January 4, 2018. The material information submitted for consideration is summarized
below.

Corp X was the common parent of a consolidated group. On Date 1, Corp X distributed
all the stock of Target to its shareholders in a transaction intended to qualify under
PLR-130509-17                                 2

§ 355 of the Code and which may also have been described in § 355(d) or (e) (the
“Stock Disposition”).

Target and Corp X intended to make a protective section 336(e) election for the Stock
Disposition but, for various reasons, an election statement under § 1.336-2(h)(5) and (6)
may not have been timely filed with the appropriate return.

Subsequently, this request was submitted, under § 301.9100-3 of the Procedure and
Administration Regulations, for an extension of time to make the Protective Election.
Target and Corp X have each represented that it is not attempting to alter a return
position taken for which an accuracy-related penalty has been or could be imposed
under § 6662 at the time of the request for relief (taking into account any qualified
amended return within the meaning of § 1.6664-2(c)(3)). The period of limitations on
assessment under § 6501(a) has not expired for the tax year in which the Protective
Election was required to be made or any subsequent tax year.

Regulations promulgated under § 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)(1), (2), and (3) provide the time and manner for making a section
336(e) election for consolidated groups, non-consolidated/non-S corporation targets,
and S corporation targets, respectively. Among the requirements is that a written,
binding agreement to make a section 336(e) election be entered into on or before the
due date of the specified tax return(s) and that the election statement described in
§ 1.336-2(h)(5) and (6) be attached to the appropriate return(s).

Section 1.336-2(j) provides that taxpayers may make a protective election in connection
with a transaction, and that such election will have no effect if the transaction does not
constitute a qualified stock disposition as defined in § 1.336-1(b)(6), but will otherwise
be binding and irrevocable.

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
PLR-130509-17                                3

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 making a section 336(e) election is fixed by the regulations (i.e., § 1.336-
2(h)). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to
grant an extension of time for Target and Corp X to make the Protective Election,
provided Target and Corp X 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 Target, Corp X, and Company
Official & and Tax Professional explain the circumstances that resulted in the failure to
timely file the Protective Election. The information establishes that Target and Corp X
reasonably relied on a qualified tax professional who failed to make, or advise them to
timely make, the Protective Election and that the request for relief was filed before the
failure to properly make the Protective 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 Target and Corp X 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, to file the Protective Election
with respect to the Stock Disposition.

WITHIN 60 DAYS OF THE DATE ON THIS LETTER, all parties having timely entered
into the written, binding agreement to make a section 336(e) election, and all
appropriate parties having attached the section 336(e) election statement to its return,
such appropriate party or parties must attach a copy of this letter to the appropriate
return, or, if the return is filed electronically, this requirement may be satisfied by
attaching a statement to the return that provides the date on and control number (PLR-
130509-17) of this letter.

The above extension of time is conditioned on all relevant taxpayers’ tax liabilities (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 Protective Election had been timely made (taking
into account the time value of money). No opinion is expressed as to the taxpayers’ tax
liabilities for the years involved. A determination thereof will be made by the Director’s
office upon audit of the Federal income tax returns involved.

We express no opinion as to: (1) whether the Stock Disposition qualifies as a “qualified
stock disposition,” or (2) any other tax consequences arising from the section 336(e)
election.
PLR-130509-17                                  4

In addition, we express no opinion as to the tax consequences of making the Protective
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,
making the Protective 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 Target, Corp X, and Company Official & Tax Professional.
However, the Director should verify all essential facts. In addition, notwithstanding that
an extension is granted under § 301.9100-3 to make the Protective Election, penalties
and interest that would otherwise be applicable, if any, continue to apply.

This letter ruling is directed only to the taxpayers 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, a copy of this letter is
being sent to your authorized representative.

                                        Sincerely,


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



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