9100 relief for a late section 336(e) election treating an S corporation stock sale as an asset sale

Plain-English summary

The shareholders of an S corporation sold its stock to a buyer that is taxed as a partnership. A section 336(e) election lets the parties treat a qualifying stock sale as if it were a sale of the corporation's assets, which usually gives the buyer a stepped-up basis in those assets and better depreciation and amortization. To make the election for an S corporation, all shareholders and the target must sign a binding agreement and attach an election statement to a timely filed return. The parties intended to make the election but missed the deadline, so they asked the IRS for an extension of time under Treasury Regulation section 301.9100-3. The IRS found the parties reasonably relied on a tax professional who failed to advise them, acted in good faith, and that relief would not prejudice the government. It granted 75 days from the date of the letter to sign the agreement and file the election statement, with 150 days to file or amend all consistent returns. The IRS did not decide whether the sale actually qualifies as a "qualified stock disposition" or the resulting tax consequences.

Ruling snapshot

• Question: May the parties to an S corporation stock sale get an extension of time to make a late section 336(e) election treating it as an asset sale?
• Outcome: approved
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2(h)(3), 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202505011                                             Third Party Communication: None
 Release Date: 1/31/2025                                       Date of Communication: Not Applicable
 Index Number: 9100.22-00, 336.05-00
                                                               Person To Contact:
 -------------------------------------                         -----------------------, ID No. -----------------
 -------------------------                                     Telephone Number:
 --------------------------------                              --------------------
 ------------------------------------------------              Refer Reply To:
                                                               CC:CORP:04
                                                               PLR-109221-24
                                                               Date:
                                                               November 05, 2024




Legend

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

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

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

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

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

State A                            =        ----------

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

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

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

This letter responds to a letter dated May 1, 2024, submitted on behalf of S Corporation
Target, as supplemented by an additional letter, dated October 29, 2024, requesting an
extension of time under § 301.9100-3 of the Procedure and Administration Regulations
to file an election. S Corporation Target is requesting an extension of time to execute
PLR-109221-24                                 2

the agreement referenced in § 1.336-2(h)(3)(i) (the “Agreement”) and for S Corporation
Target to file the election statement under § 1.336-2(h)(3)(iii) of the Income Tax
Regulations (“Election Statement”) with respect to Purchaser’s acquisition of the stock
of S Corporation Target from Shareholders on Date 1. The material information
submitted is summarized below.

On Date 1, Purchaser, a State A entity classified as a partnership for U.S. federal
income tax purposes, acquired 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). S Corporation Target,
Shareholders, and Purchaser (collectively, the “Parties”) intended for the Stock
Disposition 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 enter into the Agreement and file the Election Statement. The
Parties 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.

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).
PLR-109221-24                                 3


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 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
enter into the Agreement and file the Election Statement. The information establishes
that the Parties reasonably relied on a qualified tax professional who failed to advise
them to enter into the Agreement and to timely file the Election Statement, and the
request for relief was filed before the failure to enter into the Agreement and 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 enter into the Agreement and
file the Election Statement with respect to the Stock Disposition.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, S Corporation Target and
Shareholders must enter into a written, binding agreement in accordance with § 1.336-
2(h)(3)(i) (without regard to its timing requirement) to make the section 336(e) election,
and S Corporation Target must file the Election Statement in accordance with § 1.336-
2(h)(3)(iii) (without regard to its timing requirement). 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-109221-24) 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 each of the Parties’ tax liability (if any)
being not lower, in the aggregate, for all years affected by the section 336(e) election
than such liability 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
PLR-109221-24                                          4

money). No opinion is expressed as to 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) election 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 applicable 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 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, copies of this letter are being
sent to your authorized representatives.

                                                 Sincerely,



                                                 ____________________________________
                                                 Brian R. Loss
                                                 Chief, Branch 5
                                                 Office of Associate Chief Counsel (Corporate)

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