Parties received 75 days to file a late Section 336(e) election statement

Plain-English summary

A partnership bought all the stock of an S corporation from its shareholders, and the parties intended to make a Section 336(e) election. That election would treat the stock disposition as an asset disposition for federal tax purposes. The target later converted to a disregarded limited liability company, but its tax return and election statement were not timely filed. The IRS found that the parties acted reasonably and in good faith and that relief would not prejudice the government. It granted 75 days to file the election statement and 150 days for all relevant parties to file consistent returns, subject to an aggregate tax-liability condition.

Ruling snapshot

• Question: Could the parties file a late election statement for a Section 336(e) election covering the sale of an S corporation?
• Outcome: Approved, with filing and tax-liability conditions
• Key authorities: IRC § 336(e); Treas. Reg. § 1.336-1, § 1.336-2; Treas. Reg. § 301.9100-1 through -3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202135002 [Third Party Communication:
Release Date: 9/3/2021 Date of Communication: Month DD, YYYY]
Index Number: 9100.22-00, 336.05-00
Person To Contact:
---------------------------- ------------------, ID No. -----------------
----------------------------------------- Telephone Number:
----------------------------------- --------------------
---------------------- Refer Reply To:
CC:CORP:BR3
PLR-100178-21
Date:
June 09, 2021

Legend

LLC = -----------------------------------------
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S Corporation Target = ------------------------------------------------
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Purchaser = -------------------------------
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Shareholders = ------------------------------------------------------------------------
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Date 1 = -----------------------

State A = --------

Company Official = -------------------------
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Tax Professional = ------------------------

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

This letter responds to a letter dated December 30, 2020, submitted on behalf of LLC
(as successor of S Corporation Target), Purchaser, and Shareholders (collectively, “the
PLR-100178-21 2

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 Purchaser’s acquisition of all the stock of S Corporation Target from
Shareholders on Date 1. The material information submitted is summarized below.

On Date 1, Purchaser, a limited liability company treated as a partnership for federal
income tax purposes, acquired all the stock of S Corporation Target (a 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). Subsequently, S
Corporation Target converted to a limited liability company under the laws of State A
(“LLC”). LLC is a disregarded entity for federal income tax purposes whose sole owner
is Purchaser.

It was 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 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.
PLR-100178-21 3

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 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, LLC, 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 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 statement to its
return that provides the date on, and control number (PLR-100178-21) 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.
PLR-100178-21 4

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) 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,
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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