IRS grants late section 336(e) election statement

Plain-English summary

Purchasers acquired more than 80 percent of an S corporation’s stock in a represented qualified stock disposition, but the target’s return and section 336(e) election statement were not timely filed. The IRS granted 45 days to file the election statement and 120 days for all relevant parties to file consistent returns. Relief was conditioned on aggregate tax liabilities no lower than with timely filing and did not determine whether the transaction qualified or address other tax consequences.

Ruling snapshot

• Question: Should the parties receive extra time to file the section 336(e) election statement for an S corporation stock disposition?
• Outcome: approved
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2, 301.9100-1, 301.9100-3

Full text (IRS public release)

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Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202012002 Third Party Communication: None
Release Date: 3/20/2020 Date of Communication: Not Applicable
9100.22-00, 336.05-00
Person To Contact:
----------------------- --------------------------, ID No. ----------------
-------------------------------------------------- -----------------
-------------------------------- Telephone Number:
-------------- --------------------
---------------------------------- Refer Reply To:
CC:CORP:04
PLR-113889-19
Date:
December 06, 2019

Legend

Purchasers = --------------
------------------------

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

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

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

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

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

%X = ---------

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

This letter responds to a letter dated June 5, 2019, submitted on behalf of Purchasers,
S Corporation Target, and Seller (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 file an election statement
under §1.336-2(h)(3)(iii) ("Election Statement") with respect to Purchasers' acquisition of
%X of the stock of S Corporation Target from Seller on Date 1. Additional information
was submitted subsequently. The material information submitted is summarized below.
PLR-113889-19 2

On Date 1, Purchasers acquired %X (more than 80%) of the stock of S Corporation
Target from Seller (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 that a section 336(e) election would be made with respect to the
Disposition. However, for various reasons, the tax return and Election Statement were
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 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
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
PLR-113889-19 3

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 Official,
and Tax Professional explain the circumstances that resulted in the failure to timely file
the Election Statement. The information establishes 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).

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
with respect to the Disposition.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, 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 tax 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 statement to its
return that provides the date on, and control number (PLR-113889-19) 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 tax year in
which the transaction was consummated (and for any other affected tax 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 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 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.
PLR-113889-19 4

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 taxpayers 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 representatives.

                                   Sincerely,



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

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