IRS grants extra time for a Section 338(h)(10) election

Plain-English summary

A purchaser acquired all the stock of an S corporation from its shareholders. The parties intended a joint IRC § 338(h)(10) election, which would treat the target as selling all its assets and then liquidating, and they filed the relevant returns consistently with that treatment. They later discovered that a valid election might not have been filed on time. The IRS found that the parties acted reasonably and in good faith, sought relief before the IRS discovered the possible failure, and would not prejudice the government. It gave them 75 days to file Form 8023 and 150 days to attach the ruling to the affected returns. Relief was conditioned on aggregate tax liabilities being no lower than with a timely election, taking the time value of money into account, and the IRS did not decide whether the acquisition qualified for § 338(h)(10) treatment.

Ruling snapshot

• Question: May the purchaser and sellers file their Section 338(h)(10) election after the regulatory deadline?
• Outcome: Approved (75 days to file Form 8023 and 150 days to supplement affected returns, subject to conditions).
• Key authorities: IRC § 338(h)(10); Treas. Reg. §§ 1.338(h)(10)-1(c) and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202137001 Third Party Communication: None
Release Date: 9/17/2021 Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.07-00,
338.00-00, 338.01-00, Person To Contact:
338.01-02 ----------------------, ID No. -----------------
Telephone Number:
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------------------------------- Refer Reply To:
-------------------------------- CC:CORP:B04
------------------------------------- PLR-100185-21
Date:
June 17, 2021

Legend

Purchaser = -------------------------------
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Target = -----------------------------------------
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Sellers = ---------------------------------------------------------------------------------
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Date 1 = ------------------

Company Official = --------------------------------------
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Tax Professional = ---------------------------------------------
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Dear ---------------:
PLR-100185-21 2

This letter responds to a letter dated December 22, 2020, submitted on behalf of
Purchaser and Sellers, requesting an extension of time under §301.9100-3 of the
Procedure and Administration Regulations to file an election. Purchaser and Sellers are
requesting an extension to file a “section 338(h)(10) election” under section 338(h)(10)
of the Internal Revenue Code (the “Code”) and §1.338(h)(10)-1(c) of the Income Tax
Regulations (the “regulations”) with respect to Purchaser's acquisition of the stock of
Target, an S corporation, on Date 1 (the “Election”). The material information submitted
is summarized below.

On Date 1, Purchaser acquired all the stock of Target from Sellers. Purchaser and
Sellers have represented that the acquisition of Target qualified as a “qualified stock
purchase” within the meaning of section 338(d)(3). Purchaser and Sellers have also
represented that all relevant returns were filed consistent with making the Election.

Purchaser and Sellers intended to file the Election, but for various reasons, a valid
Election may not have been made. After the due date for the Election, it was
discovered that a valid Election may not have been made. Subsequently, this request
was submitted, under §301.9100-3, for an extension of time to file the Election.

Purchaser and Sellers have 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.

Section 338(a) permits certain stock purchases to be treated as asset acquisitions if:
(1) the purchasing corporation makes or is treated as having made a section 338
election or a section 338(h)(10) election; and (2) the acquisition is a qualified stock
purchase.

Section 338(h)(10) permits the purchasing corporation and sellers to elect jointly to treat
the target corporation as deemed to sell all of its assets and distribute the proceeds in
complete liquidation. A section 338(h)(10) election may be made for target only if
purchaser acquires stock meeting the requirements of section 1504(a)(2) from a selling
consolidated group, a selling affiliate, or the S corporation shareholders in a qualified
stock purchase. Section 1.338(h)(10)-1(c)(1).

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
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.
See §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
PLR-100185-21 3

the taxpayer acted reasonably and in good faith, and that granting relief will not
prejudice the interests of the government. See §301.9100-3(a).

In this case, the time for filing the Election is fixed by regulations (i.e., §1.338(h)(10)-
1(c)(3)). Therefore, the Commissioner has discretionary authority under §301.9100-3 to
grant an extension of time for Purchaser and Sellers to file the Election, provided
Purchaser and Sellers show they 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 Purchaser, Sellers, Company
Official, and Tax Professional explain the circumstances that resulted in the possible
failure to timely file a valid Election. The information establishes that the request for
relief was filed before the possible failure to make the Election 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 Purchaser and Sellers have shown they 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, for
Purchaser and Sellers to file the Election with respect to the acquisition of the stock of
Target.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, Purchaser and Sellers must file
the Election on Form 8023, in accordance with §1.338-2(d) and the instructions to the
Form. A copy of this letter must be attached to Form 8023.

WITHIN 150 DAYS OF THE DATE ON THIS LETTER, all relevant parties, having
originally filed or amended their returns for all open years to be consistent with a valid
Election having been made, must amend their returns to attach to the returns a copy of
this letter. In lieu of attaching a copy of this letter to their returns, taxpayers filing their
returns electronically may satisfy the requirement of attaching a copy of this letter by
attaching a statement to their return that provides the date on, and control number
(PLR-100185-21) of, the letter ruling.

The above extension of time is conditioned on the relevant taxpayers' tax liability (if any)
being not lower, in the aggregate, for all years to which the Election applies, than it
would have been if the Election had been timely made (taking into account the time
value of money). We express no opinion as to the taxpayers' 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.

We express no opinion as to: (1) whether the acquisition of Target stock qualifies as a
“qualified stock purchase” under section 338(d)(3); (2) whether the acquisition/sale of
PLR-100185-21 4

Target stock qualifies for section 338(h)(10) treatment; or (3) any other tax
consequences arising from the Election. In addition, we express no opinion as to the
tax consequences of filing the 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 Election late that are not specifically set forth in the
above ruling. For purposes of granting relief under §301.9100-3, we relied on certain
statements and representations made by Purchaser, Sellers, 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 Election,
penalties and interest that would otherwise be applicable, if any, continue to apply.

This letter is directed only to the taxpayers who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file in this office, a copy of this letter is being sent
to your authorized representative.

                                         Sincerely,

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

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