IRS grants extra time to make a late section 338(g) election for a foreign stock purchase

Plain-English summary

When one corporation buys the stock of another, § 338 lets the buyer elect to treat the stock purchase as if it had instead bought the target's assets, which can reset the tax basis of those assets. Here a foreign corporation (a controlled foreign corporation, or CFC) bought all the stock of a foreign target, and the U.S. shareholder of that CFC wanted to make a "section 338(g) election" on Form 8023. It intended to file the election but missed the deadline, and the miss was not caught until after the due date. The taxpayer asked for relief under the "9100" regulations (Treas. Reg. § 301.9100-3), which allow the IRS to grant more time for a missed regulatory election if the taxpayer acted reasonably and in good faith and relief will not prejudice the government, and here the relief request came before the IRS discovered the failure. The IRS granted the extension: the taxpayer has 75 days from the date of the letter to file the election on Form 8023, and 150 days to amend relevant returns (attaching this letter and Form 8883), plus it must notify U.S. persons who sold or hold the target's stock. The extension is conditioned on the taxpayer's total tax liability being no lower than if the election had been timely made, and the IRS expressly took no position on whether the purchase actually qualifies as a "qualified stock purchase" or on any other tax consequence.

Ruling snapshot

• Question: Should the IRS grant more time to file a late § 338(g) election for a CFC's stock purchase of a foreign target?
• Outcome: Approved (75-day extension granted under Treas. Reg. § 301.9100-3, with conditions)
• Key authorities: IRC § 338(a), (d)(3), (g); Treas. Reg. §§ 1.338-2(d), (e)(3); 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: 202226008                                             Third Party Communication: None
Release Date: 7/1/2022                                        Date of Communication: Not Applicable
Index Number: 338.00-00, 338.01-00,
              9100.00-00, 9100.06-00                          Person To Contact:
                                                              ----------------------------, ID No. --------------
----------------------                                        Telephone Number:
---------------------                                         --------------------
-------------------------------------------                   Refer Reply To:
----------------------------                                  CC:CORP:4
                                                              PLR-123551-21
                                                              Date:
                                                              April 05, 2022

Legend

Taxpayer                                      =   ---------------------------------------------------------------
                                                  ---------------------------------------------------------------
                                                  ---------------------------------------------------------------
                                                  -----------------------

Foreign Purchaser                             =   ---------------------------------------------------------------
                                                  ---------------------------------------------------------------
                                                  ------------

Foreign Target                                =   ---------------------------------------------------------------
                                                  ---------------------------------------------------------------
                                                  ------------

Date1                                         =   ----------------------

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

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

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

This letter responds to a letter dated November 3, 2021, submitted on behalf of
Taxpayer, the United States shareholder of Foreign Purchaser, requesting an extension
of time under §301.9100-3 of the Procedure and Administration Regulations to file an

PLR-123551-21                                  2

election. Taxpayer is requesting an extension to file a "section 338 election" under
section 338(g) with respect to Foreign Purchaser's acquisition of the stock of Foreign
Target on Date1 (the "Election"). The material information is summarized below.

On Date1, Foreign Purchaser acquired all the stock of Foreign Target. Taxpayer has
represented that Foreign Purchaser's acquisition of the stock of Foreign Target qualified
as a "qualified stock purchase" as defined in section 338(d)(3). Taxpayer has also
represented that Foreign Purchaser was a controlled foreign corporation as defined in
section 957 (taking into account section 953(c)) and was not required under §1.6012-
2(g) (other than §1.6012-2(g)(2)(i)(B)(2)) to file a United States income tax return for its
taxable year that includes the acquisition date.

Taxpayer intended to file the Election, but for various reasons a timely Election was not
filed. After the due date for the Election, it was discovered that the Election had not
been filed. Subsequently, this request was submitted, under §301.9100-3, for an
extension of time to file the Election. Taxpayer 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 (taking into account any
qualified amended return filed within the meaning of §1.6664-2(c)(3)) and for which the
new return position requires or permits a regulatory election for which relief is
requested.

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." Pursuant to §1.338-2(e)(3), the statement of section 338 election may be
filed by the United States shareholders of a foreign purchasing corporation that is a
controlled foreign corporation, if certain requirements are met.

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).

In this case, the time for filing the Election is fixed by the regulations (i.e., §1.338-2(d)).
Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an
extension of time for Taxpayer to file the Election, provided Taxpayer acted reasonably

PLR-123551-21                                  3

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 Taxpayer, Company Official,
and Tax Professional explain the circumstances that resulted in the failure to timely file
a valid Election. The information establishes that the request for relief was filed before
the 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 Taxpayer 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 Taxpayer to file the
Election with respect to Foreign Purchaser's acquisition of the stock of Foreign Target.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, Taxpayer must file the Election 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 amend
any relevant return to attach a copy of this letter and a copy of Form 8883.
Alternatively, 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-123551-21) of, the letter ruling.

Taxpayer must also deliver written notice of the election (and a copy of Forms 8023 and
8883, their attachments and instructions) to any United States persons selling or holding
stock in Foreign Target in accordance with §1.338-2(e)(4).

The above extension of time is conditioned on the 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). 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 the acquisition of the Foreign Target stock
qualifies as a "qualified stock purchase" under section 338(d)(3); or (2) 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

PLR-123551-21                                  4

under §301.9100-3, we relied on certain statements and representations made by
Taxpayer, 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 taxpayer 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, 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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