Parties received relief for a late section 336(e) election

Plain-English summary

A partnership, acting through a disregarded entity, acquired more than 80 percent of an S corporation target from its shareholders. The parties intended to elect under section 336(e) to treat the stock sale as an asset sale, but they did not timely execute the required binding agreement or file the election statement. The IRS found that the parties acted reasonably and in good faith and granted 75 days to complete the agreement and attach the election statement to the target's return. All affected parties also received 150 days to file or amend returns so the transaction would be reported consistently with the election. Relief was conditioned on aggregate tax liability not being lower than it would have been with a timely election. The IRS did not decide whether the acquisition was a qualified stock disposition or address the election's other tax consequences.

Ruling snapshot

• Question: Could the S corporation target, its shareholders, and the purchaser complete a late section 336(e) election to treat the stock disposition as an asset sale?
• Outcome: approved, 75 days for the agreement and election statement and 150 days for consistent returns
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2, 301.9100-1, and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202249007                                             Third Party Communication: None
 Release Date: 12/9/2022                                       Date of Communication: Not Applicable
 Index Number: 9100.22-00
                                                               Person To Contact:
 ---------------------------                                   ------------------------, ID No. ------------------
 -----------------------------------------------               ----------------------------------------------------
 ----------------------------------------                      Telephone Number:
 --------------------------------------------                  --------------------
 In Re:                                                        Refer Reply To:
          ------------------------------------------------     CC:CORP:BO1
                                                               PLR-106022-22
                                                               Date:
                                                               September 08, 2022

Legend

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

 Shareholders                = ---------------------------------------------------------------------------------
                               ---------------------------------------------------------------------------------
                               ---------------------------------------------------------------------------------
                               ---------------------------------------------------------------------------------
                               ---------------------------------------

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

 X%                          = --------

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

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

 Tax Professionals           = ------------------------------------------


Dear -------------------
PLR-106022-22                                 2

This letter responds to a letter dated March 9, 2022, submitted on behalf of S
Corporation Target, Shareholders, and Purchaser (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, through a
disregarded entity, of X% (more than 80%) of the stock of S Corporation Target from
Shareholders on Date 1. The material information submitted is summarized below.

S Corporation Target was a limited liability company that had elected to be treated as
an S corporation for federal tax purposes. On Date 1, Purchaser (a partnership for
federal tax purposes) acquired (through a disregarded entity for federal tax purposes)
X% (more than 80%) of the stock of S Corporation Target (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 for the stock sale to be treated as an asset sale, but for various
reasons, a timely election was not 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.

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.
PLR-106022-22                                  3

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
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 Professionals 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, S Corporation Target and
Shareholders (1) 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-106022-22)
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).
PLR-106022-22                                  4

The above extension of time is conditioned on the taxpayers’ (i.e., the Parties’) 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 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, 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
Professionals. 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
                                          Thomas I. Russell
                                          Chief, Branch 1
                                          Office of Associate Chief Counsel (Corporate)



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