75-day extension to make a late section 336(e) election on an S corporation stock sale

Plain-English summary

A section 336(e) election lets the sale of a corporation's stock be treated, for tax purposes, as if the company had sold its assets, which can give the buyer a stepped-up basis in those assets. Here a buyer purchased all the stock of an S corporation from its owners in a "qualified stock disposition," and everyone intended to make the 336(e) election, but for various reasons the required written agreement and election statement were never filed on time. The parties asked the IRS for relief under Treas. Reg. § 301.9100-3, explaining they had relied on a tax professional who failed to file. The IRS found the parties acted reasonably and in good faith and granted an extension: they have 75 days from the date of the letter to file the section 336(e) agreement and election statement, and 150 days to file or amend all returns needed to report the deal consistently as an asset sale. The IRS took no position on whether the sale actually qualifies or on the parties' resulting tax, and noted that any otherwise-applicable penalties and interest still apply.

Ruling snapshot

• Question: Should the parties get an extension of time to make a late section 336(e) election for the S corporation stock sale?
• Outcome: Approved (75 days to file the election; 150 days to conform returns)
• 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: 202525009
Third Party Communication: None
Release Date: 6/20/2025
Date of Communication: Not Applicable
Index Number: 336.00-00, 336.05-00,
9100.00-00, 9100.22-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:CORP:B3
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PLR-120539-24
Date:
March 20, 2025

LEGEND

S Corporation = --------------------------
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Purchaser = --------------------------------------------------
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Sellers = -----------------------
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Date 1 = ------------------ State A = ----------
Company Official = ------------------
Tax Professional = -------------------
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Dear --------------:

This letter responds to a letter dated November 8, 2024, submitted on behalf of S Corporation, Purchaser, and Sellers (collectively, the "Parties"), requesting two rulings. The Parties requested an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to properly execute the agreement referenced in § 1.336- 2(h)(3)(i) (the "Section 336(e) Agreement") and to file the election statement under
§ 1.336-2(h)(3)(iii) (the "Election Statement") with respect to Purchaser's acquisition of all of the stock of S Corporation from Sellers on Date 1. The material information is summarized below.
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Immediately before Date 1, Sellers directly owned all of the issued and outstanding stock of S Corporation, a State A corporation that has elected to be treated as an S corporation for U.S. federal income tax purposes. On Date 1, Purchaser acquired all of the stock of S Corporation from Sellers (the "Disposition"). It has been represented that the Disposition qualified as a "qualified stock disposition" as defined in § 1.336-1(b)(6). S Corporation is a corporation whose sole shareholder, for federal income tax purposes, is currently Purchaser.

The Parties intended for the stock sale to be treated as an asset sale, and for a section 336(e) election to be made with respect to the Disposition. However, for various reasons, a timely election was not made. Subsequently, a request was submitted under
§ 301.9100-3 of the Procedure and Administration Regulations 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; (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).
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The time for filing the Section 336(e) Agreement and Election Statement is fixed by 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 file the Section 336(e) Agreement and 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 Professionals 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 Section 336(e) Agreement and Election Statement, and the request for relief was filed before the failure to enter into the Section 336(e) 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 file the Section 336(e) Agreement and Election Statement with respect to the Disposition.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, S Corporation must file the Section 336(e) Agreement in accordance with § 1.336-2(h)(3)(i) and the Election Statement in accordance with § 1.336-2(h)(3)(iii). The Election Statement must be attached to S Corporation's tax return for the taxable year including Date 1. Alternatively, if S Corporation 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-120539-24) 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 Disposition qualifies as a "qualified stock disposition;" or (2) any other tax consequences arising from the filing of the section
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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,

______
Douglas C. Bates
Office of Associate Chief Counsel (Corporate) Senior Technician Reviewer, Branch 1

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