60-day extension to make a late success-based fee safe harbor election under Rev. Proc. 2011-29

Plain-English summary

When a company buys another business, fees paid to advisors that come due only if the deal closes ("success-based fees") normally must be capitalized unless the buyer keeps detailed records showing part of the fee did not help close the deal. Rev. Proc. 2011-29 offers a shortcut: a taxpayer can elect a safe harbor that treats 70% of a success-based fee as deductible and capitalizes the other 30%, but the election must be attached to the original return for the year. Here a corporation acquired another business in an asset acquisition and paid success-based advisory fees, but its return preparer inadvertently left the safe harbor election off the Form 1120. A third party spotted the omission after the return was filed. The company asked the IRS for relief under Treas. Reg. §§ 301.9100-1 and 301.9100-3 to make the election late (it withdrew a second transaction from the request). The IRS found the company acted reasonably and in good faith by relying on its preparer, and that relief would not prejudice the government, so it granted 60 days to file the election, which the company will pair with an amended return correcting its 70/30 allocation. The IRS did not rule on whether the costs were correctly treated as success-based fees or whether the transaction was within the scope of Rev. Proc. 2011-29.

Ruling snapshot

• Question: Should the taxpayer get an extension of time to make a late Rev. Proc. 2011-29 safe harbor election for success-based fees?
• Outcome: Approved (60-day extension granted)
• Key authorities: IRC § 263(a); Treas. Reg. §§ 1.263(a)-5, 301.9100-1, 301.9100-3; Rev. Proc. 2011-29

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202552017 Third Party Communication: None
Release Date: 12/26/2025 Date of Communication: Not Applicable
Index Number: 9100.00-00
Person To Contact:
------------------------------ -----------------, ID No. -----------------
------------------- Telephone Number:
------------------------------- --------------------
-------------------------------------- Refer Reply To:
CC:ITA:B01
In Re: Request for an Extension of Time PLR-102063-25
To Make an Election Date:
August 04, 2025

LEGEND

Taxpayer = --------------------------------------------
Date1 = -------
Date2 = -------
Date3 = --------------------------
A = ----------------------------------------------
B = ---------------------------------------
C = ---------------------------------
D = ----------------------------
E = -----------------------------------------
F = --------------------------------
G = --------------------
H = -----------------------
I = -------------------------
J = ------------------
K = --------------------------
L = -------------------------
Date4 = ----------------
Date5 = -----------------------
Date6 = -----------------
Date7 = ------------------

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

This letter responds to a private letter ruling request, dated Date5, and supplemental
correspondence, dated Date6 and Date7, filed by Prescott's Inc. ("Taxpayer"),
requesting a private letter ruling for an extension of time under §§ 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations to make the safe harbor
election(s) for certain fees described in Section 4 of Rev. Proc. 2011-29, 2011-18 I.R.B.

746. The fees relate to two separate transactions: a Date1 transaction for the
     PLR-102063-25 2

acquisition of A ("Date1 transaction"), and a Date2 transaction for the acquisition of B
("Date2 transaction").

Pursuant to a phone conversation and a follow up letter dated Date6 from Taxpayer's
representative, Taxpayer is withdrawing the Date1 transaction from this letter ruling
request. Therefore, for the Date2 transaction, Taxpayer requests a private letter ruling
for an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and
Administration Regulations to make the safe harbor election for certain fees described
in Section 4 of Rev. Proc. 2011-29 for the taxable year ended Date3 ("Date2 tax year").

FACTS

Taxpayer is a corporation that is wholly owned by C, a partnership. C is engaged in the
business of manufacturing, refurbishing, and providing ad-hoc and contractual
maintenance services for D, E, and F. C is located and has operations in G, H, I, and J.

On Date4, Taxpayer acquired all the outstanding member interests in B. The seller was
K. Taxpayer represents that this transaction was an asset acquisition and was
therefore a covered transaction as defined in § 1.263(a)-5(e) of the Income Tax
Regulations.

In connection with the transaction, Taxpayer engaged certain organizations to provide
financial advisory services. Each of these organizations provided financial advisory
services for which fees were payable only upon the successful closing of the
transaction.

For the preparation of Taxpayer's Form 1120 for the Date2 tax year, Taxpayer engaged
L. Taxpayer relied upon L to prepare any necessary elections, including the election
under Rev. Proc. 2011-29, in connection with the filing of Taxpayer's Form 1120 for the
Date2 tax year. However, while preparing Taxpayer's Form 1120 for the Date2 tax
year, L inadvertently omitted making the election under Rev. Proc. 2011-29 on
Taxpayer's Form 1120 for the Date2 tax year. This omission was discovered by a third
party after the filing of Taxpayer's original Form 1120 for the Date2 tax year.

Also, per Taxpayer's supplemental correspondence dated Date7, Taxpayer did not
deduct and capitalize the correct amount of transaction costs subject to the "70/30"
allocation under Rev. Proc. 2011-29 on Taxpayer's original filed Form 1120 for the
Date2 tax year. Taxpayer represents that it will deduct and capitalize the correct
amount of success-based fees on an amended tax return for the Date2 tax year, if this
ruling request is granted.

                              LAW AND ANALYSIS

Section 263(a)(1) of the Internal Revenue Code and § 1.263(a)-2(a) provide that no
deduction shall be allowed for any amount paid out for property having a useful life
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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. Whether an
amount is paid in the process of investigating or otherwise pursuing the transaction is
determined based on all of the facts and circumstances. See § 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 to
allocate a success-based fee between activities that facilitate the transaction and
activities that do not facilitate the transaction and by treating 70 percent of the amount
of the success-based fee as an amount that does not facilitate the transaction and by
capitalizing the remaining 30 percent as an amount that does facilitate the transaction.
In addition, the taxpayer must attach a 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.

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
301.9100-2 provides automatic extensions of time for making certain elections. Section
301.9100-3 provides extensions of time for making elections that do not meet the
requirements of § 301.9100-2.
PLR-102063-25 4

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. See also § 301.9100-3(b) and
(c).

Section 301.9100-3(b)(1) provides that, in general, 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 § 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 § 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.

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.
PLR-102063-25 5

Taxpayer is granted an extension of 60 days from the date of this ruling to file its
mandatory statements as required by Section 4.01 of Revenue Procedure 2011-29,
stating that it is electing the safe harbor for success-based fees, identifying the
transaction, and stating the success-based fee amounts that are deducted and
capitalized.

The rulings contained in this letter are 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 request for rulings, 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 retroactive election, whether Taxpayer is deducting and
capitalizing the proper amount of costs as success-based fees subject to the "70/30"
allocation under Rev. Proc. 2011-29, or whether Taxpayer's transactions were within
the scope of Rev. Proc. 2011-29.

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.

A copy of this ruling should be attached to Taxpayer's federal tax returns for the tax
years affected. Alternatively, taxpayers filing their returns electronically may satisfy this
requirement by attaching a statement to their 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 your authorized representatives. We are also sending a copy of this
letter to the appropriate operating division director. Enclosed is a copy of the letter
ruling showing the deletions proposed to be made in the letter when it is disclosed
under § 6110.

                                   Sincerely,


                                   /S/
                                   ______________________
                                   Sean M. Dwyer
                                   Senior Technician Reviewer, Branch 1
                                   Office of Associate Chief Counsel
                                   (Income Tax & Accounting)

PLR-102063-25 6

Enclosure (1):
Copy for § 6110 purposes

CC:

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