IRS grants late section 336(e) election

Plain-English summary

A partnership purchaser acquired all stock of an S corporation, which later liquidated, and the parties intended asset-sale treatment but missed the section 336(e) election requirements. The IRS granted 45 days to execute the binding election agreement and file the election statement, plus 120 days for all relevant parties to file consistent returns. Relief was conditioned on aggregate tax liability no lower than with a timely election and did not determine whether the sale was a qualified stock disposition.

Ruling snapshot

• Question: Should the parties receive extra time to execute and file a section 336(e) election treating an S corporation stock sale as an asset 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: 202012006 Third Party Communication: None
Release Date: 3/20/2020 Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.22-00,
336.00-00, 336.05-00 Person To Contact:
----------------------, ID No. -----------------
------------------------- Telephone Number:
------------------------------------ --------------------
---------------------- Refer Reply To:
------------- CC:CORP:4
--------------------------------- PLR-116810-19
Date:
December 17, 2019

Legend

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

Shareholder = -----------------------------------------------------------------------

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

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

Date 2 = -------------------------

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

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

This letter responds to a letter dated May 22, 2019, submitted on behalf of Purchaser,
as successor of S Corporation Target, requesting an extension of time under
§301.9100-3 of the Procedure and Administration Regulations to file an election.
Purchaser and Shareholder (collectively, “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 the election statement under §1.336-
2(h)(3)(iii) (the “Election Statement”) with respect to Purchaser's acquisition of all of the
PLR-116810-19 2

stock of S Corporation Target from Shareholder on Date 1. Additional information was
submitted subsequently. The material information submitted is summarized below.

On Date 1, Purchaser, an entity that is taxed as a partnership for federal income tax
purposes, acquired all of the stock of S Corporation Target from Shareholder (the
“Disposition”). It has been represented that the Disposition qualified as a “qualified
stock disposition” as defined in §1.336-1(b)(6). On Date 2, S Corporation Target
liquidated.

The Parties intended for the stock sale to be treated as an asset sale, but for various
reasons, a timely section 336(e) election was not made. Subsequently, this request
was submitted under §301.9100-3 for an extension of time to enter into the Agreement
and file the Election Statement. It has been represented that none of the Parties is
seeking to alter a return position for which an accuracy-related penalty has been or
could be imposed under section 6662.

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).
PLR-116810-19 3

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 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 and Company
Official explain the circumstances that resulted in the failure to timely enter into the
Agreement and file the Election Statement. The information establishes 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 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, (a) Purchaser, as successor of S
Corporation Target, and Shareholder must enter into a written, binding agreement to
make the section 336(e) election, and (b) Purchaser, as successor of 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. In addition, a copy of this letter must be attached to S
Corporation Target's return. Alternatively, if S Corporation Target’s return is filed
electronically, the requirement of attaching a copy of this letter to the return may be
satisfied by attaching a statement that provides the date on, and control number (PLR-
116810-19) 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 liability (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 parties’ 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.
PLR-116810-19 4

We express no opinion as to whether the Disposition qualifies as a “qualified stock
disposition” or 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 and Company Official. However, the Director
should verify all essential facts. In addition, notwithstanding that an extension is
granted under §301.9100-3 to enter into the Agreement and file the Election Statement,
penalties and interest that would otherwise be applicable, if any, continue to apply.

This letter 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, copies of this letter are
being sent to your authorized representatives.

                                       Sincerely,



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

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