75-day extension to file a late Section 336(e) election treating a stock sale as an asset sale

Plain-English summary

When a buyer purchases all the stock of an S corporation, a Section 336(e)
election lets the parties treat the stock sale as if it were a sale of the
company's assets, which is often better for tax purposes because it gives the
buyer a stepped-up basis in the assets. The election has to be made on a written
agreement and an election statement filed with the target's timely tax return.
Here, a partnership (through a disregarded entity) bought all the stock of an S
corporation, which then converted to an LLC, and the parties intended to make the
election but missed the filing deadline. They asked the IRS for extra time under
the Section 301.9100-3 relief rules. The IRS found the parties reasonably relied
on a tax professional who failed to file the election and that relief would not
prejudice the government, so it granted an extension: 75 days to file the election
statement and 150 days to file or amend all affected returns consistently. The
IRS expressed no opinion on whether the sale actually qualifies as a "qualified
stock disposition" or on the parties' resulting tax liabilities.

Ruling snapshot

• Question: Should the IRS grant more time to file a late Section 336(e) election statement for a qualified stock disposition?
• Outcome: Approved (75-day extension granted under Treas. Reg. § 301.9100-3)
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1(b)(6), 1.336-2(h)(3), 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                          Department of the Treasury
                                                  Washington, DC 20224

Number: 202427001                                 Third Party Communication: None
Release Date: 7/5/2024                             Date of Communication: Not Applicable
Index Number: 9100.22-00, 336.05-00
                                                  Person To Contact:
[Taxpayer name and address redacted]                --------------, ID No. --------
                                                  Telephone Number:
                                                    --------------
                                                  Refer Reply To:
                                                    CC:CORP:B2
                                                  PLR-100800-24
                                                  Date:
                                                  April 09, 2024

Legend

LLC                  = --------------
S Corporation Target = --------------
Shareholders         = --------------
Purchaser            = --------------
Date 1               = --------------
Company Official     = --------------
Tax Professional     = --------------

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

This letter responds to a letter dated January 9, 2024, submitted on behalf of LLC (as
successor to 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 file an election statement under §1.336-2(h)(3)(iii) ("Election Statement") with
respect to Purchaser's acquisition of all the stock of S Corporation Target from
Shareholders on Date 1. The material information submitted is summarized below.

On Date 1, Purchaser, a partnership, acquired (through a disregarded entity for federal
income tax purposes) all the stock of S Corporation Target from Shareholders (the
"Stock Disposition"). It has been represented that the Stock Disposition qualified as a
"qualified stock disposition" as defined in §1.336-1(b)(6). Subsequently, S Corporation
Target converted to a limited liability company under state law ("LLC"). LLC is a
disregarded entity for federal income tax purposes, whose sole owner, for federal
income tax purposes, is Purchaser.

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, a request was submitted under
§301.9100-3 for an extension of time to 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 filing the Election Statement is fixed by the regulations (i.e., §1.336-
2(h)(3)(iii)). Therefore, the Commissioner has discretionary authority under §301.9100-
3 to grant an extension of time 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 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 timely file
the Election Statement. The information establishes that the Parties reasonably relied
on a qualified tax professional who failed to timely file, or to advise them to timely file,
the Election Statement, and the request for relief was filed before the failure to file the
Election Statement was discovered by the Internal Revenue Service. See §301.9100-
3(b)(1)(i) and (v).

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 file the Election Statement
with respect to the Stock Disposition.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, LLC, as successor of 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. 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-100800-24) 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 Parties' tax liabilities (if any) being
not lower, in the aggregate, for all years to which the section 336(e) election applies
than such liabilities would have been if 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 Stock 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
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 ruling is directed only to the taxpayers 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, 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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