Late-election relief granted to file a §336(e) statement treating a stock sale as an asset sale

Plain-English summary

A buyer (a partnership) acquired all the stock of a target corporation, and the parties agreed to treat the stock sale as an asset sale under IRC Section 336(e), which can give the buyer a stepped-up basis in the target's assets. That treatment requires filing a written election statement with the target's timely return, and here it never got filed. The target asked the IRS for extra time under the "9100" relief regulations (Treas. Reg. § 301.9100-3), which let the IRS excuse a missed regulatory election when the taxpayer acted reasonably and in good faith and the government is not prejudiced. Because the parties reasonably relied on a tax professional who failed to file, and they came forward before the IRS caught the lapse, the IRS granted 45 days to file the election statement. The relief is conditioned on the parties' combined tax liability being no lower than if the election had been timely made, and the IRS did not rule on whether the deal actually qualifies.

Ruling snapshot

• Question: Should the taxpayers get an extension of time under § 301.9100-3 to file the § 336(e) election statement they missed?
• Outcome: Approved (45-day extension granted, subject to the no-lower-liability condition)
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1(b)(6), 1.336-2(h)(3)(iii), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201836002 Third Party Communication: None
Release Date: 9/7/2018 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:4
PLR-103865-18
Date:
June 13, 2018

Legend

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

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Purchaser = ------------------------------------------------

Selling Shareholders = ---------------

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

Tax Professionals = ----------------------------

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Company Officials = ---------------

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

   This letter ruling responds to a letter dated February 6, 2018, from your

authorized representative, submitted on behalf of Target requesting an extension of
time under § 301.9100-3 of the Procedure and Administration Regulations to file an
election. Target is requesting an extension of time to file the election statement under
§ 1.336-2(h)(3)(iii) ("Election Statement") with respect to Purchaser's acquisition of all
the stock of Target on Date 1 from Selling Shareholders. Additional information was
submitted in letters dated February 23, 2018, April 6, 2018, April 23, 2018, May 29,
2018, and June 13, 2018. The material information submitted for consideration is
summarized below.

    On Date 1, Purchaser, an entity taxable as a partnership for federal income tax

purposes, acquired all the stock of Target from Selling Shareholders in exchange for
valuable consideration (the "Disposition"). Target, Purchaser, and Selling Shareholders
entered into an agreement to treat the stock sale as an asset sale pursuant to § 336(e)
of the Internal Revenue Code. For various reasons, the Election Statement was not
filed and subsequently this request was submitted under § 301.9100-3 for an extension
of time to file the Election Statement. Target, Purchaser, and Selling Shareholders
have represented that they are not seeking to alter a return position for which an
accuracy-related penalty has been or could be imposed under § 6662 at the time this
relief was requested. Target has further represented that the Disposition qualified as a
qualified stock disposition as defined in § 1.336-1(b)(6).

    Regulations promulgated under § 336(e) permit certain sales, exchanges, or

distributions of stock of a corporation to be treated as an asset disposition if: (1) the
stock disposition is a qualified stock disposition as defined in § 1.336-1(b)(6); and (2) a
§ 336(e) election is made.

   Section 1.336-2(h)(3)(iii) provides that an S corporation target must attach the

§ 336(e) election statement, described in paragraphs (h)(5) and (6) of this section, 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. 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.

    The time for filing the Election Statement is fixed by § 1.336-2(h)(3)(iii).

Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an
extension of time to file the Election Statement, provided the taxpayers 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 interest of the government.

   Information, affidavits, and representations submitted by Target, Purchaser,

Selling Shareholders, Company Officials, and Tax Professionals explain the
circumstances that resulted in the failure to timely file a valid Election Statement. The
information establishes that the taxpayers 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 timely file the Election Statement
was discovered by the Internal Revenue Service. Sections 301.9100-3(b)(1)(i) and (v).

    Based on the facts and information submitted, including the affidavits submitted

and the representations made, we conclude that the taxpayers have shown they 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.
Accordingly, we grant an extension of time under § 301.9100-3, until 45 days from the
date on this letter, for Target to file the Election Statement and attach it to its Federal
income tax return for the taxable year that includes Date 1. In addition, a copy of this
letter must be attached to Target's tax return. Alternatively, if 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 on this letter and
control number (PLR-103865-18) 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 § 336(e) 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 Target, Purchaser, and Selling

Shareholders' tax liabilities (if any) being not lower, in the aggregate, for all years to
which the § 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 their 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 Disposition qualifies as a "qualified

stock disposition" under § 1.336-1(b)(6); or (2) any other tax consequences arising from
the § 336(e) election.

   In addition, we express no opinion as to the tax consequences of filing the return

or making the § 336(e) election late under the provisions of any other sections of the
Code and regulations, or as to the tax treatment of any conditions existing at the time of,
or resulting from, filing the § 336(e) 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 Target, Purchaser, Selling Shareholders,
Company Officials, and Tax Professionals. However, the Director should verify all
essential facts. In addition, notwithstanding that an extension is granted under
§ 301.9100-3 to file the § 336(e) election, penalties and interest that would otherwise be
applicable, if any, continue to apply.

   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.

  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
                                   Senior Technician Reviewer, Branch 3
                                   Office of Associate Chief Counsel (Corporate)