Extra time granted to file a late section 336(e) election after a tax professional missed the deadline

Plain-English summary

When a buyer purchases all the stock of an S corporation, the parties can elect under section 336(e) to treat the stock sale as if it were a sale of the company's assets, which can give the buyer a stepped-up basis. That election must be filed with the S corporation's tax return by a fixed deadline. Here the buyer (a partnership) bought all the stock of an S corporation and intended to make the section 336(e) election, but the election statement was never fully filed on time because the parties' tax professional failed to file it. They asked the IRS for a late-filing extension under Treasury's "9100 relief" regulations, which let the IRS forgive a missed regulatory election deadline if the taxpayer acted reasonably and in good faith and relief will not hurt the government. The IRS found reasonable reliance on the tax professional and granted 45 days to file the election statement, with the parties required to conform their returns within 120 days. This is the standard cure when a section 336(e) election is botched by a preparer's oversight rather than any attempt to game the rules.

Ruling snapshot

• Question: Should the IRS grant a late-filing extension under Treas. Reg. § 301.9100-3 to file the section 336(e) election statement that a tax professional failed to file on time?
• Outcome: approved (45-day extension to file the election statement granted)
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2, 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201909008                                             Third Party Communication: None
Release Date: 3/1/2019                                        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:2
                                                              PLR-127610-18
                                                              Date:
                                                              November 29, 2018




LEGEND

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

S Corporation              =    ------------------------------------------------------------------------------------
                                ---------------------------

Shareholders               =    -----------------------------------------

State A                    =    --------------

State B                    =    --------------

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

Company Official           =    ------------------------------------------------------------------------------------
                                ------------------------------------------------------------------------------------
                                ------------------------------------------------------------------------------------
                                ------------------------------------------------------------------------------------

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


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

This letter responds to a letter dated September 12, 2018, submitted on behalf of
Purchaser, S Corporation and Shareholders (collectively, the “Parties”), requesting an
PLR-127610-18                                2

extension of time under §§ 301.9100-1 through 301.9100-3 of the Procedure and
Administrative Regulations to file the election statement described in § 1.336-2(h)(5)
and (6) of the Income Tax Regulations (the “Election Statement”) with respect to
Purchaser’s acquisition, through a disregarded entity, of all of the stock of S Corporation
from Shareholders on Date 1 (the “Stock Disposition”). The material information
submitted in the September 12, 2018 letter and in subsequent correspondence is
summarized below.

Immediately prior to the Stock Disposition, Purchaser was a partnership for federal
income tax purposes. Purchaser owned all of the interests in a State A limited liability
company that was disregarded from Purchaser for federal income tax purposes.
S Corporation was a State B corporation that was classified as an S corporation for
federal income tax purposes. Shareholders owned all of outstanding stock of
S Corporation.

On Date 1, Shareholders sold all of the stock of S Corporation to Purchaser. The
Parties intended to make a section 336(e) election for the Stock Disposition but, for
various reasons, a timely election was not fully made. Subsequently, this request was
submitted, under § 301.9100-3, for an extension of time to file the Election Statement.
The Parties each represented that they are not seeking to alter a return position for
which an accuracy-related penalty has been or could be imposed under section 6662 at
the time of the request.

Regulations promulgated under section 336(e) permit certain sales, exchanges or
distributions of stock of a corporation to be treated as an asset disposition 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 for subtitles E, G, H, and I.
PLR-127610-18                                 3

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 to file the Election Statement, provided the Parties 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 the Parties, Company Official,
and Tax Professional explain the circumstances that resulted in the failure to timely file
the Election Statement. The information establishes that S Corporation reasonably
relied on a qualified tax professional who failed to timely file, or advise Target 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. See
§ 301.9100-3(b)(1)(i) and (v).

Based on the facts and information submitted, including the representations made, we
conclude that the Parties 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, to file the Election Statement.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, S Corporation must file the
Election Statement in accordance with § 1.336-2(h)(3)(iii). The Election Statement must
be attached to S Corporation’s tax return for the taxable year including Date 1. In
addition, a copy of this letter must be attached to S Corporation’s return. Alternatively, if
S Corporation 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-127610-18) 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 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., the Parties’) 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 Election Statement had been
PLR-127610-18                                  4

timely filed (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 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
making the section 336(e) 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 section 336(e) 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 the Parties, Company Official, 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 section
336(e) election, penalties and interest that would otherwise 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, 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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