A late section 336(e) election on the sale of an S corporation's stock gets extra time under the 9100 relief rules

Plain-English summary

A buyer purchased all of the stock of an S corporation from its shareholder. When a buyer acquires stock like this, a section 336(e) election lets the parties treat the stock sale as if it were a sale of the company's assets, which can produce a better tax result. The catch: the election requires the shareholder and the target to sign a binding written agreement and attach an election statement to the target's tax return, all by the return's due date. Here the deadline was missed. The parties asked the IRS for relief under Treasury Regulation section 301.9100-3, which lets the Commissioner grant more time for a missed regulatory election when the taxpayer acted reasonably and in good faith and relief will not harm the government. The IRS found those standards met, partly because the parties came forward before the IRS noticed the failure. It granted 75 days from the date of the letter to sign the agreement and file the election statement, with a 150-day window to file or amend the related returns. The IRS gave no opinion on whether the sale actually qualified for the election or on the ultimate tax results.

Ruling snapshot

• Question: Should the parties get an extension of time to make a late section 336(e) election on a qualified stock disposition of an S corporation?
• Outcome: Approved (75-day extension granted under Treas. Reg. § 301.9100-3)
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2; Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202145019 Third Party Communication: None
Release Date: 11/12/2021 Date of Communication: Not Applicable
Index Number: 9100.22-00
Person To Contact:
------------------------------ -------------------, ID No. -----------------
----------------------------- Telephone Number:
-------------------- ---------------------
-------------------------------- Refer Reply To:
CC:CORP:B05
PLR-105390-21
Date:
August 13, 2021

Legend:

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

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

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

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

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

Tax Professional = --------------------------

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

This letter responds to a letter dated March 2, 2021, submitted on behalf of S
Corporation Target, Purchaser, and Shareholder (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
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
stock of S Corporation Target from Shareholder on Date 1. The material information
submitted is summarized below.
PLR-105390-21 2

On Date 1, Purchaser acquired all 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).

The section 336(e) election was required to be made by the due date (including
extensions) of S Corporation Target's federal income tax return for the taxable year that
included Date 1, 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 enter into the Agreement and 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.
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 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
PLR-105390-21 3

Agreement and 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
enter into the Agreement and file the Election Statement. The information establishes
that 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 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 enter into the Agreement and
file the Election Statement.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, (1) S Corporation Target and
Shareholder must enter into a written, binding agreement in accordance with §1.336-
2(h)(3)(i) to make the section 336(e) election, and (2) 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 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-105390-21) 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 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 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 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.

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 making the section
336(e) election late under the provisions of any other section of the Code and
PLR-105390-21 4

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 letter 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.

Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representative.

                                       Sincerely,


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

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