A company gets more time to make the election that keeps a built-in loss from being duplicated

Plain-English summary

A taxpayer transferred property to a corporation in a tax-free section 351 exchange, but the property's tax basis was higher than its fair market value, meaning it carried a built-in loss. Section 362(e)(2) stops that loss from being counted twice: by default, the receiving corporation's basis in the property is capped at fair market value. However, the parties can jointly elect under section 362(e)(2)(C) to instead reduce the transferor's basis in the stock it received, preserving the corporation's basis in the property. That election requires filing a statement with a timely return. The taxpayer relied on a tax professional who failed to file it on time. The taxpayer asked for a late-filing extension under regulation section 301.9100-3, which the IRS grants when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. Because the taxpayer reasonably relied on a professional and asked for relief before the IRS caught the lapse, the IRS granted 75 days to file the election statement with an amended return. Relief is conditioned on total tax not being lower than if the election had been timely, and penalties and interest still apply.

Ruling snapshot

• Question: Should the taxpayer get an extension of time under Treas. Reg. § 301.9100-3 to file a late § 362(e)(2)(C) election statement?
• Outcome: Approved (75-day extension granted, with conditions)
• Key authorities: IRC § 362(e)(2); Treas. Reg. §§ 1.362-4(d), 301.9100-1 through 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202450011                                              Third Party Communication: None
 Release Date: 12/13/2024                                       Date of Communication: Not Applicable
 Index Number: 9100.22-00, 362.00-00
                                                                Person To Contact:
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                                                                Refer Reply To:
                                                                CC:CORP:B05
                                                                PLR-110509-24
                                                                Date:
                                                                September 18, 2024




Legend

Taxpayer                   =        ---------------------------------------------------------------------------------
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Transferee                 =        ---------------------------------------------------------------------------------
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Date 1                     =        -----------------------

Company Official           =        -------------------------------------------------
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Tax Professional           =        -----------------------------------------
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Dear ------------------:

This letter responds to a letter dated June 4, 2024, submitted on behalf of Taxpayer,
requesting an extension of time under §301.9100-3 of the Procedure and Administration
Regulations to file an election. The extension is being requested to allow Taxpayer to
file an election under section 362(e)(2)(C) and §1.362-4(d). More specifically, Taxpayer
is requesting an extension of time to file an election statement as described in §1.362-
PLR-110509-24                                  2

4(d)(3)(i) (the "Section 362(e)(2)(C) Statement"). The material information is
summarized below.

On Date 1, in a transaction that Taxpayer has represented was a transaction described
under section 351, Taxpayer transferred certain property to Transferee (the "Transfer").
At the time of the Transfer, the aggregate adjusted bases of the property transferred
exceeded its fair market value.

Section 362(e)(2)(A) generally provides that if property is transferred to a corporation as
a capital contribution or in an exchange to which section 351 applies and the aggregate
adjusted basis of the transferred property would, but for that provision, exceed the fair
market value of such property immediately after the transaction, then the transferee
corporation's basis in such property shall not exceed the fair market value of such
property.

Under section 362(e)(2)(C), however, the transferor and transferee may make a joint
election to reduce the transferor's basis in the stock received to its fair market value,
and no reduction of the transferee's basis in the property received will be required.
Section 362(e)(2)(C) provides that such election shall be made at such time and in such
form and manner as the Secretary may prescribe and, once made, shall be irrevocable.

In order to make the election under section 362(e)(2)(C), §1.362-4(d)(1)(i) requires that
prior to the filing of the Section 362(e)(2)(C) Statement, the transferor and the acquiring
corporation enter into a written, binding agreement to elect to apply section
362(e)(2)(C), and §1.362-4(d)(1)(ii) requires that the Section 362(e)(2)(C) Statement be
filed in accordance with the provisions of §1.362-4(d)(3).

Section 1.362-4(d)(3)(ii)(A) provides that if the transferor is required to file a U.S. federal
income tax return, the Section 362(e)(2)(C) Statement is filed by the transferor. Section
1.362-4(d)(3)(ii)(B) provides that if §1.362-4(d)(3)(ii)(A) does not apply and the
transferor is a CFC on the date of the transfer, all of the transferor's controlling U.S.
shareholders (in the case of a CFC) must include the Section 362(e)(2)(C) Statement
on or with their timely filed (including extensions) original U.S. returns for their taxable
years in which the transfer occurred.

The Section 362(e)(2)(C) Statement was required to be filed on or with Taxpayer's
timely filed (including extensions) tax return for Taxpayer's taxable year in which the
transfer occurred. For various reasons, however, Taxpayer failed to file the Section
362(e)(2)(C) Statement in a timely manner. 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.

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-110509-24                                 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, and that granting relief will not
prejudice the interests of the government. Section 301.9100-3(a).

The time for filing the Section 362(e)(2)(C) Statement is fixed by the regulations (i.e.,
§1.362-4(d)(3)(ii)). Therefore, the Commissioner has discretionary authority under
§301.9100-3 to grant an extension of time for Taxpayer to file the Section 362(e)(2)(C)
Statement, provided Taxpayer acted reasonably and in good faith, the requirements of
§§301.9100-1 and301.9100-3 are satisfied, and granting relief will not prejudice the
government.

Information, affidavits, and representations submitted by Taxpayer, Company Official,
and Tax Professional explain the circumstances surrounding the failure to timely file the
Section 362(e)(2)(C) Statement. The information establishes that Taxpayer reasonably
relied on a qualified tax professional who failed to timely file the Section 362(e)(2)(C)
Statement, and that the request for relief was filed before the failure to timely file the
Section 362(e)(2)(C) 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 affidavits submitted and the
representations made, we conclude that 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. 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 Section 362(e)(2)(C) Statement regarding the Transfer, in the manner described
in §1.362-4(d)(3). Taxpayer should file the Section 362(e)(2)(C) Statement with an
amended return for Taxpayer's taxable year in which the transfer occurred. A copy of
this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to the return that provides the date on, and control number (PLR-
110509-24) of, this letter ruling.

This extension of time is conditioned on the federal tax liability (if any) of any relevant
party not being lower, in the aggregate, for all years to which the section 362(e)(2)(C)
election applies than it would have been if the Section 362(e)(2)(C) Statement had been
timely filed (taking into account the time value of money). No opinion is expressed as to
any tax liabilities for the years involved. A determination thereof will be made by the
Director's office upon audit of the federal income tax returns involved.
PLR-110509-24                                           4


Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction discussed in this letter. Specifically,
no opinion is expressed concerning the basis or fair market value of any asset, whether
the Transfer is described in section 351, or whether Taxpayer is substantively entitled to
make a section 362(e)(2)(C) election. In addition, no opinion is expressed as to the tax
effects or consequences of filing the Section 362(e)(2)(C) Statement late under the
provisions of any other section of the Code or regulations, or as to the tax treatment of
any conditions existing at the time of, or effects resulting from, filing the Section
362(e)(2)(C) Statement 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 that Taxpayer, Company Official, and Tax Professional made under
penalties of perjury. However, the Director should verify all essential facts. Moreover,
notwithstanding that an extension is granted under §301.9100-3 to file the Section
362(e)(2)(C) Statement, any penalties and interest that would otherwise be applicable
still apply.

This letter 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
                                                    Chief, Branch 1
                                                    Office of Associate Chief Counsel (Corporate)

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