Buyer and seller of an S corporation's stock get extra time to make a late section 336(e) election treating the sale as an asset sale
Plain-English summary
When someone buys the stock of an S corporation, a section 336(e) election
lets the parties treat the deal as if the company sold its assets instead of
its shares, which can give the buyer a stepped-up basis in the assets. Here a
purchaser bought all of the S corporation stock held by a seller who owned 90%,
while a minority shareholder kept the other 10%. The parties intended to make
the section 336(e) election but missed the deadline, which requires a written
binding agreement among all shareholders and the company plus an election
statement attached to a timely filed return. They asked the IRS for a
discretionary extension under Treasury Regulation section 301.9100-3. The IRS
found that the parties reasonably relied on a tax professional who failed to
make or advise them to make the election, that they acted reasonably and in
good faith, and that granting relief would not prejudice the government. The
IRS granted 75 days from the date of the letter to execute the agreement and
file the election statement, and 150 days for all parties to file or amend
returns to report the deal consistently. The IRS expressed no opinion on
whether the sale actually qualifies as a "qualified stock disposition," and it
warned that any otherwise-applicable penalties and interest still apply.
Ruling snapshot
- Question: May the parties to an S corporation stock sale get an extension of time to make a late section 336(e) election treating the sale as an asset disposition?
- Outcome: approved (75-day extension to make the election; 150 days for consistent returns)
- Key authorities: IRC § 336(e); Treas. Reg. §§ 301.9100-1, 301.9100-3, 1.336-2(h)(3)
Full text (IRS public release)
Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 202616002
Release Date: 4/17/2026
Index Number: 9100.00-00, 336.05-00, 336.00-00
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
------------------------, ID No. -----------------
Telephone Number:
Refer Reply To:
CC:CORP:BO5
PLR-115169-25
Date:
January 15, 2026
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Legend
S Corporation = --------------
Purchaser = ------------------------------------------------------------------------------
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Seller = ------------------------------------------------------------------------------
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Company Officials = ------------------------------------------------------------------------------
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Date 1 = -----------------------
Minority Shareholder = ------------------------------------------------------------------------------
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State A = -----------
Tax Professional = ------------------------------------------------------------------------------
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Dear -----------------:
This letter responds to a letter dated July 29, 2025, submitted on behalf of S
Corporation, Purchaser, and Seller (collectively, the “Parties”), requesting 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 submitted is summarized below.
Immediately before Date 1, Seller directly owned 90% 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 the
stock of S Corporation held by the Seller (the “Disposition”). Minority Shareholder
continued to own 10% of the outstanding shares of S Corporation.
S Corporation, Seller, Purchaser, and Minority Shareholder (collectively, the “Parties”)
intended for the Disposition to be treated as an asset sale by filing an election under
section 336(e). 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 execute 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 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; 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 to 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 would not prejudice the interests of the government.
Information, affidavits, and representations submitted by the Parties, Company Officials
and the Tax Professional explain the circumstances that resulted in the failure to timely
enter into the Agreement and file the Election Statement. The information submitted
establishes that the Parties reasonably relied on the Tax Professional to make the
section 336(e) election, who failed to timely make, or advise the Parties to timely make,
the section 336(e) election, and that the request for relief was filed before the failure to
timely make the section 336(e) election 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 that includes 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-115169-25) 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 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) 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 Officials, 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 letter 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.
Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representative.
Sincerely,
__________________
John Lovelace
Office of Associate Chief Counsel
(Corporate)
Senior Technician Reviewer, Branch 5