S corporation stock-sale election receives filing extension

Plain-English summary

A partnership bought all the stock of an S corporation, and the parties had signed a binding agreement before the sale to elect asset-sale treatment under Section 336(e). They did not timely attach the required election statement to the S corporation's return and sought relief before the IRS discovered the failure. The IRS found that the parties acted reasonably and in good faith and that an extension would not prejudice the government. It gave the S corporation 75 days to file the election statement and all relevant parties 150 days to file or amend returns consistently with the election. The relief was conditioned on the parties' aggregate tax liabilities not being lower than if they had filed on time.

Ruling snapshot

• Question: Could the parties receive an extension to file the Section 336(e) election statement for the S corporation stock sale?
• Outcome: Approved, subject to filing deadlines and an aggregate-tax-liability condition.
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1(b)(6), 1.336-2(h), and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202119008 Third Party Communication: None
Release Date: 5/14/2021 Date of Communication: Not Applicable
Index Number: 9100.22-00, 336.05-00
Person To Contact:
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Refer Reply To:
CC:CORP:2
PLR-125311-20
Date:
February 19, 2021

Legend

S Corporation = --------------------------------------------------------
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Purchaser = --------------------------------------------------------
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Shareholder = --------------------------------------------------------
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Date 1 = ---------------------------

Company Official = --------------------------------------------------------
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Tax Professional = --------------------------------------------------------
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Dear ----------------:

This letter responds to a letter dated September 17, 2020 submitted on behalf of S
Corporation, Purchaser, and Shareholder (collectively, the “Parties”), requesting an
extension of time under §§301.9100-1 through 301.9100-3 of the Procedure and
Administration Regulations to file an election. The Parties are requesting an extension
of time to file the election statement described in §1.336-2(h)(3)(iii) (the “Election
PLR-125311-20 2

Statement”) with respect to Purchaser’s acquisition of all the stock of S Corporation
from Shareholder on Date 1. The material information is summarized below.

On Date 1, Purchaser, an entity classified as a partnership for federal income tax
purposes, acquired all the stock of S Corporation 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).

Prior to Date 1, the Parties 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, this request
was submitted under §301.9100-3 for an extension of time to 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 at the time of the request.

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-125311-20 3

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 Official,
and Tax Professional explain the circumstances that resulted in the failure to timely file
the Election Statement. The information establishes that 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 75 days from the date on this letter to file the Election Statement with
respect to the Disposition.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, 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 Date 1.
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, and control number (PLR-125311-20) of, this letter ruling.

WITHIN 150 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 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.

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, Company Official, and
Tax Professional. However, the Director should verify all essential facts. In addition,
PLR-125311-20 4

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, a copy of this letter is
being sent to your authorized representatives.

                                       Sincerely,


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

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