Extension granted for section 336(e) election after S corporation stock sale

Plain-English summary

A purchaser acquired all stock of an S corporation from its shareholders, and the parties intended to treat the qualified stock disposition as an asset sale under section 336(e). They did not timely enter the required written agreement or file the election statement. The IRS found that the parties acted reasonably and in good faith and granted 45 days to complete those election steps. It also required all relevant parties to file consistent original or amended returns within 120 days and conditioned relief on their aggregate tax liabilities not being lower than if the election had been timely made.

Ruling snapshot

• Request: Extension of time to execute the required agreement and file the election statement for a section 336(e) election involving an S corporation target
• Outcome: approved, with 45 days for the election documents and 120 days for consistent returns
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2(h), and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201941001                                              Third Party Communication: None
Release Date: 10/11/2019                                       Date of Communication: Not Applicable
Index Number: 336.05-00, 9100.22-00
                                                               Person To Contact:
------------------------                                       ------------------, ID No. ------------------
-----------------------------------                            Telephone Number:
---------------------------                                    ----------------------
---------------------------                                    Refer Reply To:
----------------------------------------                       CC:CORP:1
                                                               PLR-101699-19
                                                               Date:
                                                               July 16, 2019




Legend

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PLR-101699-19                                             2

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

Company Official                    =         -------------------
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Dear ---------------:

This letter responds to a letter dated January 30, 2019, submitted on behalf of
Purchaser, S Corporation Target, and Shareholders (collectively, the “Parties”),
requesting an extension of time under §301.9100-3 of the Procedure and Administration
Regulations to file an election. The Parties are requesting an extension of time to
properly execute the agreement referenced in §1.336-2(h)(3)(i) of the Income Tax
Regulations (the “Agreement”) and to file an election statement under §1.336-2(h)(3)(iii)
(“Election Statement”) with respect to Purchaser’s acquisition of all of the stock of S
Corporation Target from Shareholders on Date 1. Additional information was received
subsequently. The material information submitted is summarized below.

On Date 1, Purchaser, a corporation, acquired all of the stock of S Corporation Target
from Shareholders in exchange for cash (the “Disposition”). It has been represented
that the Disposition qualified as a “qualified stock disposition” as defined in §1.336-
1(b)(6).

The Parties intended for the stock sale to be treated as an asset sale, but for various
reasons, a timely election was not made. Subsequently, the Parties submitted a
request under §301.9100-3 of the Procedure and Administration Regulations for an
extension of time to enter into the Agreement and 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 for relief.

Regulations promulgated under section 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)(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

PLR-101699-19                                 3

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 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
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 entering into the Agreement and filing the Election Statement is fixed by the
regulations (i.e., §1.336-2(h)(3)(i) and (iii)). Therefore, the Commissioner has
discretionary authority under §301.9100-3 to grant an extension of time to enter into the
Agreement and 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 will not prejudice the interests of the government.

Information, affidavits, and representations submitted by the Parties and Company
Official explain the circumstances that resulted in the failure to enter into the Agreement
and file the Election Statement. The information establishes that the request for relief
was filed before the failure to timely enter into the Agreement and file the Election
Statement was discovered by the Internal Revenue Service. See §301.9100-3(b)(1)(i).

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 enter into the Agreement and
file the Election Statement.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, S Corporation Target and
Shareholders (1) must enter into a written, binding agreement in accordance with
§1.336-2(h)(3)(i) to make the section 336(e) election, and (2) S Corporation Target must
file the Election Statement in accordance with §1.336-2(h)(3)(iii). The Election
Statement must be attached to S Corporation Target’s tax return for the taxable year
including Date 1. Alternatively, if S Corporation Target files its return electronically, it
may satisfy the requirement of attaching a copy of this letter to the return by attaching a

PLR-101699-19                                 4

statement to its return that provides the date on this letter and control number of this
letter ruling (PLR-101699-19).

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 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 Agreement had been timely entered into and the Election
Statement had been 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 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, making 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 and Company Official.
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, copies of this letter are
being sent to your authorized representatives.

                                       Sincerely,



                                       Thomas I. Russell
                                       Chief, Branch 1
                                       Office of Associate Chief Counsel (Corporate)



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