Fund received more time for built-in-loss property basis election

Plain-English summary

An investment fund and affiliated funds transferred business assets with aggregate tax basis above fair market value to an affiliated corporation in transactions represented to qualify under IRC § 351. The requesting fund intended to elect jointly with the corporation under IRC § 362(e)(2)(C) to reduce stock basis rather than the corporation's basis in the transferred assets. The required election statement for the first group of transfers was not filed on time. The IRS found that the fund reasonably relied on company personnel and tax professionals, acted in good faith, and sought relief before the IRS discovered the omission. It granted 75 days to file the statement, conditioned on aggregate federal tax liability not being lower than if the election had been timely filed.

Ruling snapshot

• Question: Could the fund receive additional time to file the joint basis election statement for the first transfer of built-in-loss property?
• Outcome: Approved
• Key authorities: IRC §§ 351 and 362(e)(2)(C); Treas. Reg. §§ 1.362-4(d) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202529006 Third Party Communication: None
Release Date: 7/18/2025 Date of Communication: Not Applicable
Index Number: 9100.00-00, 362.00-00,
362.01-00 Person To Contact:
--------------------, ID No. -----------------
--------------------- Telephone Number:
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---------------------------------------------------------- Refer Reply To:
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--------------------------- PLR-119756-24
Date:
April 18, 2025

LEGEND

Taxpayer = --------------------------------------------------------------------------------
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Investment Advisor = --------------------------------------------------------------------------------
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Fund 2 = --------------------------------------------------------------------------------
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Fund 3 = --------------------------------------------------------------------------------
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Fund 4 = --------------------------------------------------------------------------------
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Fund 5 = --------------------------------------------------------------------------------
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Transferee 1 = --------------------------------------------------------------------------------
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Transferee 2 = --------------------------------------------------------------------------------
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Date 1 = ---------------------
Company Official = --------------------------------------------------------------------------------
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Tax Professional 1 = --------------------------------------------------------------------------------
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PLR-119756-24 2

Tax Professional 2 = --------------------------------------------------------------------------------
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Business A = ---------------------------------------------
US Tax Return = -------------------------------------------------------------

This letter responds to a letter dated October 25, 2024, and subsequent
correspondence, submitted by your authorized representative, requesting an extension
of time under Treas. Reg. § 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 Treas. Reg. § 1.362-4(d). More
specifically, Taxpayer is requesting an extension of time to file an election statement as
described in Treas. Reg. § 1.362-4(d)(3)(i) (the “Section 362(e)(2)(C) Statement”). The
material information is summarized below.

Taxpayer (also referred to as “Fund 1”), Fund 2, Fund 3, Fund 4 and Fund 5
(collectively the “Funds”) and Transferee 1 and Transferee 2 (collectively the
“Transferees”) are affiliates of Investment Advisor. The Transferees elected to be
treated as corporations for federal income tax purposes. The Funds and the
Transferees engage in Business A.

Each of the Funds was required to file a U.S. Tax Return for the relevant tax year. For
the relevant tax year, each of the Funds had one or more direct or indirect partners who
were U.S. Persons as defined in section 7701(a)(30) and would be subject to federal
income taxation on the gain or loss on the disposition of the property.

On Date 1, Fund 1, Fund 2, Fund 3, and Fund 4 each transferred assets related to
Business A to Transferee 1 (“Transfer 1”). Also on Date 1, Fund 5 transferred assets
related to Business A to Transferee 2 (“Transfer 2”). Taxpayer represented (i) that both
Transfer 1 and Transfer 2 qualified under section 351 and (ii) at the time of the
Transfers, the property transferred, in each Transfer 1 and Transfer 2, had an
aggregate tax basis exceeding the fair market value of such property.

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.
Treas. Reg. § 1.362-4(d)(1) allows the section 362(e)(2)(C) election to be made

PLR-119756-24 3

protectively and will have no effect to the extent that the property transferred in the
transaction is determined not to be subject to section 362(e)(2) and Treas. Reg. §1.362-
4(d)(1).

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), Treas. Reg. § 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 Treas. Reg. § 1.362-4(d)(1)(ii) requires that the Section
362(e)(2)(C) Statement be filed in accordance with the provisions of Treas. Reg.
§ 1.362-4(d)(3).

Treas. Reg. § 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
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 each 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 does not
seek to alter a return position for which an accuracy-related penalty has been or could
be imposed under section 6662 at the time Taxpayer requested relief.

Under Treas. Reg. § 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.

Treas. Reg. §§ 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. Treas. Reg. § 301.9100-1(a). Treas. Reg. § 301.9100-2 provides
automatic extensions of time for making certain elections. Requests for relief under
Treas. Reg. § 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. Treas. Reg. § 301.9100-3(a).

The time for filing the Section 362(e)(2)(C) Statement is fixed by the regulations (i.e.,
Treas. Reg. § 1.362-4(d)(3)(ii)). Therefore, the Commissioner has discretionary
authority under Treas. Reg. § 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

PLR-119756-24 4

good faith, the requirements of Treas. Reg. §§ 301.9100-1 and 301.9100-3 are
satisfied, and granting relief will not prejudice the government.

Information, affidavits, and representations submitted by Taxpayer, Company Official,
Tax Professional 1, and Tax Professional 2 explain the circumstances surrounding the
failure to timely file the Section 362(e)(2)(C) Statement. The information establishes that
the Taxpayer reasonably relied on Company Official and qualified tax professionals in
failing to timely file the Section 362(e)(2)(C) Statement and 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 Treas. Reg. § 301.9100-3(b)(1)(i).

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 Treas. Reg. §§ 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 Treas. Reg. § 301.9100-3, until 75 days from the
date on this letter, for Taxpayer to file the Section 362(e)(2)(C) Statement regarding
Transfer 1, in the manner described in Treas. Reg. § 1.362-4(d)(3). 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 and control number (PLR-119756-24) 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.

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
Transfer 1 or Transfer 2 are described in section 351, or whether Taxpayer is
substantively entitled to make a section 362(e)(2)(C) election. More specifically, no
opinion is expressed or implied as to whether section 362(e)(2) applies, and the extent it
applies to the transfer because section 362(e)(1) could apply to the extent that there are
foreign partners in the funds. 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 Treas. Reg. § 301.9100-3, we have relied on
certain statements and representations that Taxpayer, Company Official, Tax

PLR-119756-24 5

Professional 1 and Tax Professional 2 made under penalties of perjury. However, the
Director should verify all essential facts. Moreover, notwithstanding that an extension is
granted under Treas. Reg. § 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,

                                             _________________________
                                             Jonathan M. Kushner
                                             Senior Technician reviewer, Branch 3
                                             Office of Associate Chief Counsel (Corporate)

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