Late section 338(g) election granted after adviser error

Plain-English summary

A corporate purchaser acquired all the stock of a foreign target and intended to make a section 338(g) election so the stock purchase would be treated as an asset acquisition. A qualified tax professional failed to make or advise the purchaser to make the election, and the purchaser sought relief before the IRS discovered the omission. The IRS found that the purchaser acted reasonably and in good faith and that relief would not prejudice the government. It granted 45 days to file Form 8023 and required all relevant returns to be filed or amended within 120 days. The extension was conditioned on the parties' aggregate tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: Could the purchaser receive an extension to make its missed section 338(g) election?
• Outcome: Yes, subject to the stated filing deadlines and tax-liability condition.
• Key authorities: IRC § 338; Treas. Reg. §§ 1.338-2 and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201924014 Third Party Communication: None
Release Date: 6/14/2019 Date of Communication: Not Applicable
Index Number: 9100.06-00, 338.01-00
Person To Contact:
--------------------- --------------------------, ID No. ----------------
---------------------- -----------------
---------------------------- Telephone Number:
--------------------------- ----------------------
------------------------------------- Refer Reply To:
CC:CORP:1
PLR-127429-18
Date:
March 13, 2019

Legend

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

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

New Target = -----------------------------------

Seller = -----------------------

State X = ---------------------

Country Y = --------------

Date A = --------------------

Date B = --------------------

Date C = ----------------------

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

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

PLR-127429-18 2

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

    This letter responds to a letter dated June 29, 2018, submitted on behalf of

Purchaser, requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to file an election. Purchaser is requesting an extension to
file a “§ 338 election” under § 338(g) with respect to Purchaser’s acquisition of the stock
of Target (sometimes hereinafter referred to as the “Election”), on Date B. Additional
information was received in a letter dated December 27, 2018. The material information
is summarized below.

   Purchaser is a State X corporation. Target was a Country Y corporation before

and at the time of the acquisition by Purchaser.

     On Date A, Purchaser and Sellers entered into a purchase agreement for

Purchaser to acquire all of the Target stock from Seller. On Date B, Purchaser acquired
all of the stock of Target from Seller in exchange for cash and a promise to make
installment payments. It is represented that Purchaser’s acquisition of the stock of
Target qualified as a "qualified stock purchase," as defined in § 338(d)(3). After the
acquisition, Purchaser converted Target into a Country Y entity (New Target) that is
treated as disregarded from its owner under § 301.7701-3(b)(2)(C) of the Procedure
and Administration Regulations.

Purchaser has represented that it is not seeking to alter a return position for which an
accuracy-related penalty has been or could be imposed under § 6662.

   Purchaser intended to file the Election. The Election was due on Date C, 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.

  Section 338(a) permits certain stock purchases to be treated as asset

acquisitions if: (1) the purchasing corporation makes or is treated as having made a
"§ 338 election" or a “§ 338(h)(10) election”; and (2) the acquisition is a "qualified stock
purchase."

   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

PLR-127429-18 3

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).

  In this case, the time for filing the Election is fixed by the regulations (i.e.,

§ 1.338-2(d)). Therefore, the Commissioner has discretionary authority under
§ 301.9100-3 to grant an extension of time for Purchaser to file the Election, provided
Purchaser 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 and representations submitted by Purchaser, Company Official, and

Tax Professional explain the circumstances that resulted in the failure to timely file a
valid Election. The information establishes that Purchaser reasonably relied on a
qualified tax professional who failed to make, or advise Purchaser to make, the 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 Purchaser 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 45 days from the date on this letter, for Purchaser to file the
Election with respect to the acquisition of the stock of Target, as described above.

   WITHIN 45 DAYS OF THE DATE ON THIS LETTER, Purchaser must file the

Election on Form 8023, in accordance with § 1.338 2(d) and the instructions to the form.
A copy of this letter must be attached to Form 8023.

    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 as a § 338 transaction for the taxable year in which the
transaction was consummated (and for any other affected taxable year). A copy of this
letter and a copy of Form 8883 must be attached to any tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy the requirement of
attaching a copy of this letter by attaching a statement to their return that provides the
date and control number of the letter ruling.

   Purchaser must also deliver written notice of the election (and a copy of Forms

8023 and 8883, their attachments and instructions) to a U.S. person (if any) selling or
holding stock in Target. See §1.338-2(e)(4).

PLR-127429-18 4

     The above extension of time is conditioned on the taxpayers' (Purchaser's and

Target’s) tax liability (if any) being not lower, in the aggregate, for all years to which the
Election applies, than it would have been if the Election had been timely made (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 acquisition of the Target stock

qualifies as a "qualified stock purchase" under § 338(d)(3); or (2) any other tax
consequences arising from the Election.

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

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 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 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, 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, 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)