Corporation received 60 days to make a late success-based fee election

Plain-English summary

A corporate group used the Rev. Proc. 2011-29 safe harbor for success-based transaction fees, deducting 70 percent and capitalizing 30 percent. It reported the merger fees consistently with the safe harbor but inadvertently omitted the required election statement from its original return. The IRS compliance team found the missing attachment after accepting documentation for the covered fees. The corporation sought only to file the omitted statement, not to change its accounting method. The IRS found reasonable conduct and no prejudice to the government and granted 60 days to file an amended return with the election statement.

Ruling snapshot

• Question: May the corporation make a late Rev. Proc. 2011-29 election for success-based transaction fees?
• Outcome: Approved
• Key authorities: IRC §§ 263 and 446; Treas. Reg. §§ 1.263(a)-5 and 301.9100-1 through 301.9100-3; Rev. Proc. 2011-29

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202524011 Third Party Communication: None
Release Date: 6/13/2025 Date of Communication: Not Applicable
Index Number: 9100.00-00, 263.00-00
Person To Contact:
----------------------------------------------- -----------------, ID No. -----------------
-------------------------------------------- Telephone Number:
--------------------- ---------------------
----------------------------- Refer Reply To:
CC:ITA:B01
In Re: Request for an Extension of Time PLR-118296-24
To Make an Election Date:
March 11, 2025

LEGEND

Taxpayer = ----------------------------------------------------------------------
Date 1 = --------------------------
Year 1 = -------
Date 2 = -------------------------
Date 3 = -----------------------
$a = ---------------
$b = -----------------
A = -----
B = -------------
C = ---------
D = ---------------------

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

This letter responds to your letter, dated October 3, 2024, and supplemental
correspondence, dated December 20, 2024, January 27, 2025, and March 7, 2025,
submitted on behalf of Taxpayer requesting an extension of time under §§ 301.9100-1
and 301.9100-3 of the Procedure and Administration Regulations to make the election
described in section 4.01 of Rev. Proc. 2011-29, 2011-18 I.R.B. 746, for fees contingent
on the successful closing of a transaction for which Taxpayer has provided
documentation acceptable to the IRS’s Compliance Assurance Process (“CAP”) team.

FACTS

Taxpayer is the common parent of a group of wholly owned corporations that files Form
1120, U.S. Corporate Income Tax Return. Taxpayer uses an overall accrual method of
accounting. On Date 1, Taxpayer and A entered into an agreement and plan of merger
(the “Transaction”). The Transaction was consummated on Date 2. Taxpayer e-filed its
Year 1 Form 1120 on Date 3, consistent with having made the safe-harbor election
under Rev. Proc. 2011-29 by deducting 70 percent of certain fees from the Transaction
and capitalizing 30 percent of these fees from the Transaction. Taxpayer, however, had
not made the election for these fees under Rev. Proc. 2011-29 because Taxpayer had
inadvertently failed to attach to its Year 1 Form 1120 the completed election statement
required by section 4.01(3) of Rev. Proc. 2011-29 (the “Election Statement”). The IRS’s
CAP team on the Transaction, determined that Taxpayer had provided sufficient
documentation that the following fees paid to three entities in connection with the
Transaction satisfied the requirements of Rev. Proc. 2011-29: (1) $a to B; (2) $a to C;
and (3) $b to D. This CAP team discovered that the Election Statement had not been
attached to Year 1 Form 1120.

Taxpayer filed this request for an extension of time under §§ 301.9100-1 and 301.9100-
3 to attach a completed Election Statement to its Year 1 Form 1120 in accordance with
section 4.01(3) of Rev. Proc. 2011-29, thus making the election for the fees approved
by its CAP team.

LAW AND ANALYSIS

Section 263(a)(1) of the Internal Revenue Code and § 1.263(a)-2(a) of the Income Tax
Regulations provide that no deduction shall be allowed for any amount paid out for
property having a useful life substantially beyond the taxable year. In the case of an
acquisition or reorganization of a business entity, costs that are incurred in the process
of acquisition and that produce significant long-term benefits must be capitalized.
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 89-90, 112 S. Ct. 1039, 117 L. Ed. 2d
226 (1992); Woodward v. Commissioner, 397 U.S. 572, 575-576, 90 S. Ct. 1302, 25 L.
Ed. 2d 577 (1970).

Under § 1.263(a)-5, a taxpayer must capitalize an amount paid to facilitate the business
acquisition or reorganization transactions described in § 1.263(a)-5(a). In general, an
amount is paid to facilitate a transaction described in § 1.263(a)-5(a) if the amount is
paid in the process of investigating or otherwise pursuing the transaction; a facts and
circumstances analysis under § 1.263(a)-5(b)(1).

Section 1.263(a)-5(f) provides that an amount paid that is contingent on the successful
closing of a transaction described in § 1.263(a)-(5)(a) (i.e., a success-based fee) is
presumed to facilitate the transaction. A taxpayer may rebut this presumption by
maintaining sufficient documentation to establish that a portion of the fee is allocable to
activities that do not facilitate the transaction.

Section 4.01 of Rev. Proc. 2011-29 provides a safe harbor election for taxpayers that
pay or incur success-based fees for services performed in the process of investigating
or otherwise pursuing a covered transaction described in § 1.263(a)-5(e)(3). In lieu of
maintaining the documentation required by § 1.263(a)-5(f), a taxpayer may elect that the
safe harbor in Rev. Proc. 2011-29 apply instead. To do so section 4.01 of Rev. Proc.
2011-29 provides the taxpayer must (1) treat 70 percent of the amount of the success-
based fee as an amount that does not facilitate the transaction; (2) capitalize the
remaining 30 percent as an amount that does facilitate the transaction; and (3) attach
the Election Statement to its original federal income tax return for the taxable year the
success-based fee is paid or incurred, stating that the taxpayer is electing the safe
harbor, identifying the transaction, and stating the success-based fee amounts that are
deducted and capitalized. Whether a fee for which an election is made under Proc.
2011-29 is eligible for said election is subject to verification by the Commissioner upon
examination of Taxpayer’s federal income tax return on which the election is claimed.

Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
to make certain regulatory elections. Section 301.9100-1(b) defines a "regulatory
election" as an election whose due date is prescribed by a regulation published in the
Federal Register, or a revenue ruling, revenue procedure, notice or announcement
published in the Internal Revenue Bulletin.

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 an election. Section
301.9100-3(a) provides that 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(b)(1) provides, in general, that a taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer: (i) requests relief before the failure to make
the regulatory election is discovered by the IRS; (ii) failed to make the election because
of intervening events beyond the taxpayer's control; (iii) failed to make the election
because, after exercising reasonable diligence, the taxpayer was unaware of the
necessity for the election; (iv) reasonably relied on the written advice of the IRS; or (v)
reasonably relied on a qualified tax professional, and the tax professional failed to
make, or advise the taxpayer to make, the election.

Section 301.9100-3(b)(3) provides that a taxpayer is deemed to have not acted
reasonably and in good faith if the taxpayer: (i) seeks to alter a return position for which
an accuracy-related penalty has been or could be imposed under section 6662 at the
time the taxpayer requests relief and the new position requires or permits a regulatory
election for which relief is requested; (ii) was informed in all material respects of the
required election and related tax consequences but chose not to file the election; or (iii)
uses hindsight in requesting relief.

Section 301.9100-3(c)(1) provides that the interests of the Government are prejudiced if
granting relief would result in the taxpayer having a lower tax liability in the aggregate
for all taxable years affected by the election than the taxpayer would have had if the
election had been timely made. The interests of the Government are ordinarily
prejudiced if the taxable year in which the regulatory election should have been made,
or any taxable years that would have been affected by the election had it been timely
made, are closed by the period of limitations on assessment under section 6501(a)
before the taxpayer's receipt of a ruling granting relief under this section.

Taxpayer's election is a regulatory election as defined in § 301.9100-1(b) because the
due date of the election is prescribed in section 4.01(3) of Rev. Proc. 2011-29. The
Commissioner has the authority under §§ 301.9100-1 and 301.9100-3 to grant an
extension of time to file a late regulatory election.

Section 2.04 of Rev. Proc. 2011-29 provides that a taxpayer’s method for determining
the portion of a success-based fee that facilitates a transaction and the portion that
does not facilitate a transaction is a method of accounting under section 446. Elections
relating to methods of accounting are subject to special rules. Section 301.9100-
3(c)(2). However, Taxpayer is not seeking to change its method of accounting for the
success-based fees, only to file the statement required by section 4.01(3) of Rev. Proc.
2011-29.

CONCLUSION

Based solely on the facts and representations submitted, we conclude that Taxpayer
acted reasonably and in good faith and granting relief will not prejudice the interests of
the Government. Accordingly, the requirements of §§ 301.9100-1 and 301.9100-3 have
been met. Taxpayer is granted an extension of 60 days from the date of this ruling to
file an amended Year 1 Form 1120 attached to which will be the Election Statement
required by section 4.01 of Rev. Proc. 2011-29, completed in conformity with the
determination of its CAP team.

The ruling contained in this letter is based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
an appropriate party. While this office has not verified any of the material submitted in
support of the ruling request, it is subject to verification on examination.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter, including whether Taxpayer properly included the correct costs as success-
based fees subject to the election for which this ruling request relates, or whether
Taxpayer’s transaction was within the scope of Rev. Proc. 2011-29.

This ruling is directed only to Taxpayer. Section 6110(k)(3) provides that it may not be
used or cited as precedent.

A copy of this ruling should be attached to Taxpayer’s federal tax returns for the tax
years affected. Alternatively, if Taxpayer files its returns electronically, Taxpayer may
satisfy this requirement by attaching a statement to its electronically filed return that
provides the date and control number of the letter ruling.

In accordance with the Power of Attorney on file with this office, we are sending a copy
of this letter to Taxpayer’s authorized representatives. Enclosed is a copy of the letter
ruling showing the deletions proposed to be made in the letter when it is disclosed
under section 6110.

                                  Sincerely,


                                  THERESA M. MELCHIORRE
                                  ______________________
                                  Theresa M. Melchiorre
                                  Senior Technician Reviewer, Branch 1
                                  Office of Associate Chief Counsel
                                  (Income Tax & Accounting)

Enclosure (1):
Copy for § 6110 purposes

CC: