9100 relief to make a late section 336(e) election and a late S corporation election after a stock sale

Plain-English summary

When buyers purchased all the stock of an S corporation, the parties intended to make two tax elections but missed the deadlines. The first, a section 336(e) election, lets a "qualified stock disposition" be treated for tax purposes as if the target sold its assets, which typically gives the buyers a stepped-up basis in those assets. It requires a binding written agreement among all the shareholders and the target, plus an election statement filed with the return. The second was a late S corporation election under § 1362(b)(5) to have the target treated as an S corporation as of a chosen date. The parties asked for "9100 relief," a discretionary extension under Treas. Reg. § 301.9100-3 to make these regulatory elections, and the IRS granted both. Relief is available when the taxpayer acted reasonably and in good faith and granting it will not prejudice the government, and here the request was filed before the IRS discovered the missed deadlines. The letter sets deadlines: 75 days to sign the 336(e) agreement and file the election, 120 days to file Form 2553 for the S election, and 150 days to file or amend all affected returns consistently. The ruling decides only timeliness; it takes no position on whether the sale was actually a qualified stock disposition or whether the target is a valid S corporation. It matters because missing these elections can be costly, and 9100 relief can restore the intended asset-sale and S-corporation treatment.

Ruling snapshot

• Question: Should the parties get extensions of time under § 301.9100-3 to make a late section 336(e) election and a late S corporation election?
• Outcome: Approved (9100-3 relief granted; 75/120/150-day deadlines set to complete the elections and conform returns)
• Key authorities: IRC §§ 336(e), 1361, 1362(b)(5); Treas. Reg. §§ 1.336-1(b)(6), 1.336-2(h)(3), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202152016 Third Party Communication: None
Release Date: 12/30/2021 Date of Communication: Not Applicable
Index Number: 336.05-00, 1361.00-00,
9100.22-00 Person To Contact:
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------------------------- ID No. ---------------
------------------------------- Telephone Number:
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---------------------------------------- Refer Reply To:
CC:CORP:5
PLR-113641-21
Date:
October 05, 2021

Legend

S Corporation Target = -------------------------------
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Purchasers = -----------------
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Shareholders = -----------------
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Date 1 = ---------------------

Date 2 = -----------------

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

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

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

This letter responds to a letter dated June 1, 2021, submitted on behalf of S Corporation
Target, Purchasers, and Shareholders (collectively, the "Parties") requesting extensions
of time under §301.9100-3 of the Procedure and Administration Regulations to file two
PLR-113641-21 2

elections. Specifically, the Parties are requesting extensions of time to: (1) properly
execute the agreement referenced in §1.336-2(h)(3)(i) of the Income Tax Regulations
(the "Section 336(e) Agreement") and file the election statement under §1.336-
2(h)(3)(iii) (the "Section 336(e) Election") with respect to Purchasers' acquisition of all
the stock of S Corporation Target from Shareholders on Date 1; and (2) to file a late
S corporation election under section 1362(b)(5) (the "S Corporation Election" and,
together with the Section 336(e) Election, the "Elections"). Additional material was
submitted in subsequent letters. The material information submitted is summarized
below.

                                       FACTS

On Date 1, Shareholders sold all the stock of S Corporation Target to Purchasers (the
"Disposition"). It has been represented that the Disposition qualified as a “qualified stock
disposition” as defined in §1.336-1(b)(6).

The Parties intended to enter into the Section 336(e) Agreement and timely file the
Section 336(e) Election to treat the Disposition as an asset sale. The Parties also
intended to timely elect to treat S Corporation Target as an S corporation effective
Date 2. For various reasons, however, the Section 336(e) Agreement was not entered
into and the Elections were not timely filed.

Subsequently, a request was submitted under §301.9100-3 for an extension of time to
enter into the Section 336(e) Agreement and file the Elections. 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.

                               LAW AND ANALYSIS

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.
PLR-113641-21 3

Section 1361(a) provides that the term "S corporation" means, with respect to any
taxable year, a small business corporation for which an election under section 1362(a)
is in effect for such year.

Section 1362(a) generally provides that a small business corporation may elect to be an
S corporation.

Section 1362(b) provides when an S corporation election will be effective. Generally, if
an S corporation election is made within the first two and one-half months of a
corporation's taxable year, then that corporation will be treated as an S corporation
beginning the year in which the election is made.

Section 1362(b)(3) provides that if an S corporation election is made after the first two
and one-half months of a corporation's taxable year, then that corporation will not be
treated as an S corporation until the taxable year after the year in which the S election is
made.

Section 1362(b)(5) provides that if (A) an election under section 1362(a) is made for any
taxable year after the date prescribed by section 1362 for making the election or no
section 1362(a) election is made for any taxable year, and (B) the Secretary determines
that there was reasonable cause for the failure to timely make the election, then the
Secretary may treat the election as timely made for such taxable year.

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. Section 301.9100-1(b) provides
that the term "regulatory election" includes an election whose due date is prescribed by
a regulation published in the Federal Register.

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. Section 301.9100-3(a) provides that requests for relief under
§301.9100-3 will be granted when the taxpayer provides evidence (including affidavits
described in §301.9100-3(e)) 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.

In this case, the times for entering into the Section 336(e) Agreement and filing the
Elections are fixed by the regulations (i.e., §§1.336-2(h)(3)(i) and (iii) and 1.1362-
6(a)(2)). Therefore, the Commissioner has discretionary authority under §301.9100-3 to
grant extensions of time to enter into the Section 336(e) Agreement and to file the
Elections, provided the Parties acted reasonably and in good faith, the requirements of
PLR-113641-21 4

§§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 enter into
the Section 336(e) Agreement and to timely file the Elections. The information
establishes that the request for relief was filed before the failures to timely enter into the
Section 336(e) Agreement and file the Elections were discovered by the Internal
Revenue Service. See §301.9100-3(b)(1)(i).

                                   CONCLUSION

Based on the facts and information submitted, including the representations made, we
conclude that the Parties 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, the following extensions of time are granted under §301.9100-3:

(i) The Parties are granted until 75 days from the date on this letter to enter into the
Section 336(e) Agreement and file the Section 336(e) Election; and

(ii) The Parties are granted until 120 days from the date on this letter to elect to treat
S Corporation Target as an S corporation, effective Date 2.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, S Corporation Target and
Shareholders must enter into a written, binding agreement in accordance with §1.336-
2(h)(3)(i) to make the section 336(e) election, and S Corporation Target must file the
Section 336(e) Election in accordance with §1.336-2(h)(3)(iii). The Section 336(e)
Election 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 of (PLR-113641-
21), to this letter ruling.

WITHIN 120 DAYS OF THE DATE ON THIS LETTER, the S Corporation Election
should be made by filing Form 2553, Election by a Small Business Corporation, with an
effective date of Date 2, with the appropriate service center. A copy of this letter should
be attached to the S Corporation Election.

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 the Section 336(e) Election for the taxable
PLR-113641-21 5

year in which the transaction was consummated (and for any other affected taxable
year).

The above extensions of time are conditioned on no relevant party's tax liabilities (if any)
being lower, in the aggregate, for all taxable years affected by the Elections than it
would have been if the Section 336(e) Agreement had been timely entered into and the
Elections 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.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. For example, we express no opinion as to: (1) whether the Disposition
qualifies as a "qualified stock disposition"; (2) whether S Corporation Target is a valid S
corporation; or (3) any other tax consequences arising from the Elections.

In addition, we express no opinion as to the tax consequences of filing the return or
making the Elections 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 Elections 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 Elections,
penalties and interest that would otherwise be applicable, if any, continue to apply.

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

In accordance with the Power of Attorney on file with this office, copies of this letter are
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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