Buyer and seller of an S corporation get more time to elect asset-sale treatment for a stock purchase

Plain-English summary

When someone buys at least 80% of a corporation's stock, a section 336(e) election lets the parties treat the stock sale as if the company had instead sold all its assets, which can give the buyer a stepped-up tax basis in the assets. For an S corporation, making that election requires two steps by the tax-return due date: all shareholders and the company sign a binding written agreement to make the election, and the company attaches an election statement to its timely return. Here an individual bought at least 80% of an S corporation's stock and everyone intended asset-sale treatment, but the agreement and election statement were never done on time. The parties asked the IRS for relief under the section 301.9100 regulations, which allow extra time for a missed regulatory election when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. The IRS granted the extension. The parties have 75 days from the letter to sign the agreement and file the election statement, and 150 days to file or amend all returns to report the transaction consistently. The relief is conditioned on the parties' total tax liability being no lower than if the election had been timely (accounting for the time value of money), and the IRS expressed no view on whether the sale actually qualifies. This is a routine fix for a missed corporate election deadline.

Ruling snapshot

• Question: Should the buyer, seller, and S corporation get an extension of time under § 301.9100-3 to make a late section 336(e) election treating a qualified stock disposition as an asset sale?
• Outcome: Approved (75 days to make the election; 150 days to conform returns)
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2, 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202506009 Third Party Communication: None
Release Date: 2/7/2025 Date of Communication: Not Applicable
Index Number: 336.05-00, 9100.22-00
Person To Contact:
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------------------------------ Refer Reply To:
CC:CORP:B03
PLR-112560-24
Date:
November 14, 2024

Legend

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

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

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

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

This letter responds to a letter dated June 28, 2024, submitted on behalf of S
Corporation Target, Shareholder, 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) (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 at least 80% of the stock of S Corporation Target from Shareholder on Date 1 as
described below. The material information submitted is summarized below.

On Date 1, Purchaser (an individual), acquired (through an entity disregarded for federal
tax purposes) at least 80% of the stock of S Corporation Target from Shareholder (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).

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 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.

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 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 request for relief was filed before the failure to enter into the Agreement and to
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 with respect to the Stock Disposition.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, S Corporation Target and
Shareholder must enter into a written, binding agreement in accordance with §1.336-
2(h)(3)(i) 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). 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-112560-24) 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 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 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 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
                                           Chief, Branch 1
                                           Office of Associate Chief Counsel (Corporate)

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