IRS grants extra time to complete a Section 336(e) election

Plain-English summary

An individual, acting through a disregarded entity, acquired all the stock of an S corporation from its shareholders. The parties intended to make an IRC § 336(e) election so the represented qualified stock disposition would be treated as an asset disposition, but they did not timely complete the required election statement. The IRS found that they acted reasonably and in good faith, requested relief before the IRS discovered the failure, and would not prejudice the government. It gave the successor entity 75 days to file the election statement with the target’s return and gave all relevant parties 150 days to file or amend returns consistently with the election. Relief was conditioned on aggregate tax liabilities being no lower than they would have been with a timely election, taking the time value of money into account. The IRS did not decide whether the transaction actually qualified or address its other tax consequences.

Ruling snapshot

• Question: May the parties file the Section 336(e) election statement after its regulatory deadline?
• Outcome: Approved (75 days to file the statement and 150 days to conform affected returns, subject to conditions).
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-2(h)(3) and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202137002 Third Party Communication: None
Release Date: 9/17/2021 Date of Communication: Not Applicable
Index Number: 336.00-00, 336.05-00,
9100.22-00 Person To Contact:
---------------------, ID No. -----------------
------------------------------- Telephone Number:
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---------------------------------------------- Refer Reply To:
------------------------------- CC:CORP:B04
PLR-101869-21
Date:
June 17, 2021

Legend:

Entity = --------------------------------------------------
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S Corporation Target = ----------------------------------------
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Purchaser = -------------------------------

Shareholders = ------------------------------------------------------------------------
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PLR-101869-21 2

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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 January 15, 2021, submitted on behalf of Entity (as
successor of S Corporation Target), Purchaser, and Shareholders (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 the 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 (an individual), through Entity (a disregarded entity for federal
income tax purposes), acquired all the stock of S Corporation Target 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
liquidated into Entity, and shortly thereafter Entity became a partnership for federal
income tax purposes.

It was intended that a section 336(e) election would be made for the Disposition but, for
various reasons, a timely election was not fully made. Subsequently, this 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.

Regulations promulgated under section 336(e) permit certain sales, exchanges or
distributions of stock of a corporation to be treated as an asset disposition 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
PLR-101869-21 3

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 for 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
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, 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 timely 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 of this letter, to file the Election Statement.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, Entity, 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 that included Date 1. In addition, a copy of this letter must be
attached to S Corporation Target’s return. Alternatively, if S Corporation Target files its
return electronically, it may satisfy the requirement of attaching a copy of this letter to
PLR-101869-21 4

the return by attaching a statement to its return that provides the date on, and control
number (PLR-101869-21) 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 all relevant taxpayers’ 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
Directors’ 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, making 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, notwithstanding that an extension is granted under §301.9100-3 to file the
Election Statement, 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
                                       Chief, Branch 1
                                       Office of Associate Chief Counsel (Corporate)

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