Parties received 45 days to file a late section 336(e) election statement

Plain-English summary

A partnership purchased all stock of an S corporation, which later merged into a disregarded limited liability company owned by the purchaser. The parties timely signed a binding agreement to make a section 336(e) election so the stock acquisition could be treated as an asset disposition, but their tax professional failed to file or advise them to file the required election statement. The request for relief was made before the IRS discovered the omission. The IRS granted 45 days for the successor LLC to file the election statement and 120 days for all affected parties to file or amend returns consistently. Relief was conditioned on aggregate tax liabilities, including the time value of money, being no lower than if the statement had been timely filed.

Ruling snapshot

• Question: May the parties file their omitted section 336(e) election statement after the regulatory deadline?
• Outcome: approved, with 45 days for the election statement and 120 days for consistent returns
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2(h), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201942004                                              Third Party Communication: None
Release Date: 10/18/2019                                       Date of Communication: Not Applicable
Index Number: 336.00-00, 336.05-00,
              9100.00-00, 9100.22-00                           Person To Contact:
                                                               -----------------------, ID No. -------------------
----------------------------------------------                 ---------------------------------------------------
---------------------------------------                        Telephone Number:
---------------------------------                              ----------------------
--------------------------------------                         Refer Reply To:
                                                               CC:CORP:B04
                                                               PLR-101972-19
                                                               Date:
                                                               July 23, 2019


Legend

LLC                        =         ------------------------------------------
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S Corporation              =         -----------------------------------------
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Shareholders               =         ------------------------
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Purchaser                  =         ---------------------------------------
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Date1                      =        -----------------------

StateA                     =        --------------

StateB                     =        --------------

Date2                      =        ----------------------------

Date3                      =        -------------------

Company Officials =                 ------------------------
PLR-101972-19                                             2

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Tax Professional           =         ---------------------------------
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Dear ----------------:

This letter responds to a letter dated December 21, 2018, submitted on behalf of LLC,
as successor of S Corporation, Purchaser, and Shareholders (collectively, “the
Parties”), requesting an extension of time under §301.9100-3 of the Procedure and
Administration Regulations to file an election. Additional information was submitted
subsequently.

The Parties are requesting an extension of time to file the election statement under
§1.336-2(h)(3)(iii) (the “Election Statement”) with respect to Purchaser's acquisition of
all of the stock of S Corporation from Shareholders on Date1. The material information
submitted is summarized below.

On Date1, Purchaser, a StateA limited liability company that is taxed as a partnership
for federal income tax purposes, acquired all of the stock of S Corporation, a StateB
corporation that elected to be treated as an S corporation for federal income tax
purposes, from Shareholders (the “Disposition”). It has been represented that the
Disposition qualified as a “qualified stock disposition” as defined in §1.336-1(b)(6).

On Date2, S Corporation merged with and into LLC, a StateB limited liability company.
LLC is a disregarded entity for federal income tax purposes, whose sole owner, for
federal income tax purposes, is Purchaser.

Prior to Date3, the due date (including extensions) for S Corporation's tax return for the
taxable year that included Date1, S Corporation, Purchaser, and Shareholders entered
into a written, binding agreement providing that a section 336(e) election would be
made with respect to the Disposition. However, for various reasons, the Election
Statement was not timely filed. Subsequently, a request was submitted under
§301.9100-3 of the Procedure and Administration Regulations 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.
PLR-101972-19                                  3

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 completing the following requirements: (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 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 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 will not prejudice the interests of the government.

Information, affidavits, and representations submitted by the Parties, Company Officials,
and Tax Professional explain the circumstances that resulted in the failure to timely file
the Election Statement. The information establishes that the Parties reasonably relied
on a qualified tax professional who failed to timely file, or to advise them to timely file,
the Election Statement, and the request for relief was filed before the failure to file the
Election Statement was discovered by the Internal Revenue Service. See §301.9100-
3(b)(1)(i) and (v).
PLR-101972-19                                  4

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, LLC, as successor of 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 Date1. 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-101972-19) 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 all relevant 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 timely filed (taking
into account the time value of money). No opinion is expressed as to the relevant
parties’ 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
Election Statement 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 Statement 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 Officials, 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 Election Statement, 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.
PLR-101972-19                                    5

Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representative.

                                    Sincerely,



                                    T. Ian Russell
                                    Chief, Branch 1
                                    Office of Association Chief Counsel (Corporate)