Buyer gets extra time to make late Section 338(g) elections for acquired foreign subsidiaries

Plain-English summary

When a corporation buys the stock of a target company, a Section 338 election
lets the buyer treat the stock purchase as if it were an asset purchase for tax
purposes, which can change the tax basis of the acquired assets. Here a corporate
parent bought a target and its affiliates, including several controlled foreign
corporations. The parent timely made Section 338 elections for the U.S. companies
but, for various reasons, failed to make valid Section 338(g) elections for the
foreign affiliates. It asked the IRS for an extension under the Section 301.9100-3
relief rules, showing it had reasonably relied on a tax professional who did not
make the elections. The IRS granted the extension: 75 days to file the elections
on Form 8023 and 150 days for all parties to file or amend the related returns.
The relief is conditioned on the taxpayers' total tax not being lower than if the
elections had been timely made, and it waives no penalties or interest.

Ruling snapshot

• Question: Should the buyer get an extension under Section 301.9100-3 to make
  late Section 338(g) elections for the acquired foreign affiliates?
• Outcome: Approved (75-day extension to file the elections; conditioned on
  no reduction in aggregate tax)
• Key authorities: IRC § 338(a), (g), (d)(3); Treas. Reg. §§ 1.338-2,
  301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202210015                                             Third Party Communication: None
 Release Date: 3/11/2022                                       Date of Communication: Not Applicable
 Index Number: 338.00-00, 338.01-02,
               9100.00-00, 9100.06-00                          Person To Contact:
                                                               ------------------, ID No. -----------------
 ----------------------------------------------                Telephone Number:
 ------------------------------                                --------------------
 -----------------------------                                 Refer Reply To:
 ----------------------------------                            CC:CORP:B03
                                                               PLR-115347-21
                                                               Date:
                                                               December 15, 2021




Legend

Parent                    =        ------------------------------
                                   ------------------------

Seller                    =        --------------
                                   ------------------------

DE                        =        ------------------------------------------
                                   --------------------------------------------------------
                                   ------------------------

Target                    =        ------------------------------------------------------
                                   ----------------------------------------------
                 ------------------------

U.S. Affiliate            =        ---------------------------------------------------------
                                   ----------------------------------------------
                                   ------------------------

Foreign Affiliates        =        --------------------------------------------------------
                                   ------------------------------

                                   -------------------------------------------------------------
                                   ------------------------------

                                   --------------------------------------------------------------------
                                   ------------------------------

                                   ----------------------------------------------------------------------
PLR-115347-21                                     2

                            ------------------------------

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

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

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


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

This letter responds to a letter dated July 26, 2021, submitted on behalf of Parent, the
common parent of a consolidated group, requesting an extension of time under
§301.9100-3 of the Procedure and Administration Regulations to file elections. Parent
is requesting an extension of time to file "section 338 elections" under section 338(g)
with respect to the deemed acquisitions of the stock of Foreign Affiliates (sometimes
hereinafter referred to as the "Elections") on Date 1. The material information submitted
is summarized below.

Immediately prior to Date 1, Seller, a U.S. corporation, owned through DE (a
disregarded entity for federal income tax purposes) all the stock of Target and Target's
affiliates, which included U.S. Affiliate and Foreign Affiliates (which were controlled
foreign corporations under section 957(a)). On Date 1, Parent acquired from Seller all
the ownership interests in DE, and through DE, all the stock of Target, U.S. Affiliate and
Foreign Affiliates. Parent has represented that the acquisition of Target was a "qualified
stock purchase" within the meaning of section 338(d)(3).

Parent timely made section 338 elections with respect to Target and U.S. Affiliate but,
for various reasons, valid section 338 elections for Foreign Affiliates were not made.
Subsequently, this request was submitted under §301.9100-3 for an extension of time to
file the Elections. Parent has represented that it is 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. Parent also has represented that it would have
made the Elections as of the due date for the Elections regardless of the enactment of
the Tax Cuts and Jobs Act (TCJA) and the issuance of regulations relating to the TCJA.

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."

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
PLR-115347-21                                 3

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, 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 Parent, Company Official, and
Tax Professional explain the circumstances that resulted in the failure to timely file the
Elections. The information establishes that Parent reasonably relied on a qualified tax
professional who failed to make, or advise Parent to make, the Elections. See
§301.9100-3(b)(1)(v).

Based on the facts and information submitted, including the representations made, we
conclude that Parent has shown it 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 Parent to file the Elections
with respect to the deemed acquisitions of Foreign Affiliates, as described above.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, Parent must file the Elections on
Form 8023, in accordance with §§1.338-2(d) and (e)(3) 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 must file or
amend, as applicable, all returns and amended returns (if any) necessary to report the
transactions as section 338 transactions for the taxable year in which the transactions
were consummated (and for any other affected taxable year). A copy of this letter and a
copy of Form 8883 must be attached to any tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy the requirements of
attaching a copy of this letter by attaching a statement to their return that provides the
date on, and control number (PLR-115347-21) of, the letter ruling.

Parent must also deliver written notice of the Elections (and a copy of Forms 8023 and
8883, their attachments and instructions) to any U.S. persons selling or holding stock in
Foreign Affiliates in accordance with §1.338-2(e)(4).

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 Elections apply, than it
would have been if the Elections had been timely made (taking into account the time
PLR-115347-21                                 4

value of money). No opinion is expressed 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 any acquisition qualified as a "qualified stock
purchase" under section 338(d)(3); or (2) any other tax consequences arising from the
Elections.

In addition, we express no opinion as to the tax consequences of filing 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 relied on certain statements and representations made by
Parent, 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 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, copies of this letter are
being sent to your authorized representatives.

                                       Sincerely,


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




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