IRS grants relief for omitted success-fee election statements

Plain-English summary

A publicly traded corporation paid success-based fees for two acquisitions.
Its return deducted 70 percent of each fee and capitalized 30 percent, which
was consistent with the safe harbor in Revenue Procedure 2011-29, but its tax
return preparer accidentally omitted the required election statements. The
corporation sought relief before the IRS discovered the omission and showed
that the assessment period remained open. The IRS found that it had acted
reasonably and in good faith and that relief would not prejudice the
government. It granted 60 days from the ruling date to file amended returns
with the missing election statements.

Ruling snapshot

• Question: May the taxpayer receive extra time to perfect two safe-harbor elections for acquisition success-based fees when its preparer omitted the required statements?
• Outcome: Approved
• Key authorities: IRC §§ 263(a) and 6501(a); 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: 202630011
Release Date: 7/24/2026
Index Number: 9100.00-00

Third Party Communication: None
Date of Communication: Not Applicable

Person To Contact:
----------------, ID No. -----------------
Telephone Number:
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Refer Reply To:
CC:ITA:B02
PLR-119892-25

Date:
April 27, 2026

LEGEND

Taxpayer = --------------------------------------------------------------
Products = --------------------------------------------------------------
           --------------------------------------------------------
Date 1 = -------------------------
Date 2 = -----------------------
Date 3 = --------------------------------------------------------------
Date 4 = --------------------------------------------------------------
Date 5 = --------------------------------------------------------------
Date 6 = -----------------
Tax Year 1 = -------
State X = ----------
Subsidiary A = ---------------------------------------
Subsidiary B = --------------------------------
Financial Consultant 1 = --------------------------------------------------------------
Financial Consultant 2 = -------------------------------
$a = -----------------
$b = ---------------
Tax Return Preparer = ---------------

PLR-119892-25
2

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

This letter responds to your letter ruling request dated Date 1, submitted by Taxpayer.
Taxpayer requests an extension of time pursuant to §§ 301.9100-1 and 301.9100-3 of
the Procedure and Administration Regulations to make two late elections to allocate
success-based fees, as provided by Rev. Proc. 2011-29, 2011-1 C.B. 746.

FACTS

Taxpayer makes the following representations:

Taxpayer is a publicly traded domestic corporation that manufactures, distributes, and
services Products. Taxpayer was formed on Date 2 under the laws of State X and is
treated as a corporation for federal income tax purposes.

On Date 3, Taxpayer entered into an engagement agreement with Financial Consultant
1 to provide financial consulting services and assistance with the acquisition of
Subsidiary A. On Date 4, Taxpayer entered into an engagement agreement with
Financial Consultant 2 to provide financial consulting services and assistance with the
acquisition of Subsidiary B.

Pursuant to its engagement agreements with Financial Consultant 1 and 2, Taxpayer
was required to pay success-based fees contingent upon the successful acquisition of
Subsidiary A and/or Subsidiary B.

Taxpayer acquired 100% of Subsidiary A on Date 5 and upon the successful closing of
the acquisition, Taxpayer incurred a success-based fee to Financial Consultant 1 in the
amount of $a. Taxpayer acquired 100% of Subsidiary B on Date 6 and upon the
successful closing of the acquisition of Subsidiary B, Taxpayer incurred a success-
based fee to Financial Consultant 2 in the amount of $b.

Taxpayer engaged Tax Return Preparer to prepare its Federal income tax return for Tax
Year 1. On its return, Taxpayer claimed a deduction for 70 percent of each success-
based fee paid to Financial Consultant 1 and Financial Consultant 2, and capitalized the
remaining 30 percent. Taxpayer’s Tax Year 1 return, however, failed to include the
required statement indicating that Taxpayer was electing safe-harbor treatment under
Rev. Proc. 2011-29. Taxpayer submitted sworn declarations stating that Tax Return
Preparer was tasked with preparing statements electing the safe harbor under Rev.
Proc. 2011-29, and attaching them to Taxpayer’s return, but failed to do so.

Despite failing to include an election statement, Taxpayer’s returns reported its
acquisition-related success-based fees in a manner consistent with the safe-harbor
election under Rev. Proc. 2011-29. Accordingly, Taxpayer failed to make valid elections
because it failed to include the election statements required by § 4.01(3), Rev. Proc.
2011-29 (“Required Election Statement”).

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After filing Taxpayer’s tax return for Tax Year 1, Tax Return Preparer discovered that it
had failed to include the Required Election Statements due to administrative errors.
Taxpayer then filed the present letter ruling request, seeking an extension of time to file
the Required Election Statements for Tax Year 1, pursuant to §§ 301.9100-1 and
301.9100-3 of the Procedure and Administration Regulations.

Taxpayer represents that the period of limitation on assessment under § 6501(a) of the
Internal Revenue Code (“Code”) for Tax Year 1 has not expired.

LAW

Section 263(a) of the Code provides generally that no deduction is allowed for any
amount paid out for property having a useful life substantially beyond the taxable year.
In the case of an acquisition of a business entity, costs that are incurred in the process
of acquisition and that produce significant long-term benefits must be capitalized. See
INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 89-90 (1992); Woodward v.
Commissioner, 397 U.S. 572, 575-576 (1970).

Under § 1.263(a)-5, a taxpayer must capitalize an amount paid to facilitate a business
acquisition or reorganization transaction 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. Section 1.263(a)-5(b)(1).

Section 1.263(a)-5(f) provides that an amount that is contingent on the successful
closing of a transaction described in § 1.263(a)-5(a), or success-based fee, is presumed
to facilitate the transaction. A taxpayer may rebut the presumption by maintaining
sufficient documentation to establish that a portion of the fee is allocable to activities
that do not facilitate the transaction. This documentation must be completed on or
before the due date of the taxpayer's timely filed original federal income tax return
(including extensions) for the taxable year during which the transaction closes.

To reduce controversy between the IRS and taxpayers over the documentation required
to allocate success-based fees between the activities that facilitate the transaction and
activities that do not facilitate the transaction, the IRS issued Rev. Proc. 2011-29.
Section 4.01 of the revenue procedure provides a safe-harbor stating that the IRS would
not challenge a taxpayer's allocation of a success-based fee between activities that
facilitate a transaction described in § 1.263(a)-5(e)(3) and activities that do not facilitate
the transaction if the taxpayer --

       (1) treats 70 percent of the amount of the success-based fee as an amount that
       does not facilitate the transaction;

       (2) capitalizes the remaining 30 percent as an amount that does facilitate the
       transaction; and

PLR-119892-25
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      (3) attaches 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 (i.e., the Required Election
      Statement).

It is this last requirement that Taxpayer seeks to satisfy with this ruling request.
Taxpayer requests an extension of time to perfect its safe-harbor election; to amend its
original filed returns and supersede those returns with ones that include the Required
Election Statement as an attachment.

Section 3 of Rev. Proc. 2011-29 provides that the revenue procedure applies to covered
transactions described in § 1.263(a)-5(e)(3), which include --

      (i) A taxable acquisition by the taxpayer of assets that constitute a trade or
      business;

      (ii) A taxable acquisition of an ownership interest in a business entity (whether
      the taxpayer is the acquirer in the acquisition or the target of the acquisition) if,
      immediately after the acquisition, the acquirer and the target are related within
      the meaning of § 267(b) or § 707(b); or

      (iii) A reorganization described in § 368(a)(1)(A), (B), or (C) or a reorganization
      described in § 368(a)(1)(D) in which stock or securities of the corporation to
      which the assets are transferred are distributed in a transaction which qualifies
      under § 354 or 356 (whether the taxpayer is the acquirer or the target in the
      reorganization).

Sections 301.9100-1 through 301.9100-3 of the Procedure and Administration
Regulations provide the standards the Commissioner uses to determine whether to
grant an extension of time to make a regulatory 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.

Section 301.9100-1(b) defines the term "regulatory election" as an election whose due
date is prescribed by a regulation published in the Federal Register, or a revenue ruling,
procedure, notice or announcement published in the Internal Revenue Bulletin.

Section 301.9100-1(c) provides that the Commissioner may 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.

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Section 301.9100-3(a) provides extensions of time to make a regulatory election under
Code sections other than those for which § 301.9100-2 expressly permits automatic
extensions. Requests for extensions of time for regulatory elections will be granted
when the taxpayer provides evidence (including affidavits described in the regulations)
to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably
and in good faith, and granting relief will not prejudice the interests of the Government.

Section 301.9100-3(b)(1) states that a taxpayer will be 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 Service;

       (ii) failed to make the election because of intervening events beyond the
       taxpayer's control;

       (iii) failed to make the election because, after exercising due diligence, the
       taxpayer was unaware of the necessity for the election;

       (iv) reasonably relied on the written advice of the Service; or

       (v) reasonably relied on a qualified tax professional, including a tax professional
       employed by the taxpayer, and the tax professional failed to make, or advise the
       taxpayer to make the election.

Under § 301.9100-3(b)(3), a taxpayer will not be considered to have 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 (taking
       into account § 1.6664-2(c)(3)) 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.

If specific facts have changed since the original deadline that make the election
advantageous to a taxpayer, the Service will not ordinarily grant relief.

Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable
extension of time only when the interests of the Government will not be prejudiced by
the granting of relief. Section 301.9100-3(c)(1)(i) provides, in part, 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

PLR-119892-25
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taxpayer would have had if the election had been timely made (taking into account the
time value of money). Section 301.9100-3(c)(1)(ii) provides, in part, that 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.

ANALYSIS

Taxpayer represents that for Federal income tax purposes the acquisitions of Subsidiary
A and Subsidiary B were taxable acquisitions considered to be covered transactions
pursuant to § 1.263(a)-5(e)(3). Accordingly, Taxpayer qualifies to make the safe-harbor
election provided by Rev. Proc. 2011-29.

As a result of the acquisitions, Taxpayer incurred and subsequently paid an amount of
success-based fees during Tax Year 1. Taxpayer complied with the substantive
requirements for making the safe-harbor election by deducting 70 percent and
capitalizing 30 percent of those success-based fees on its original Federal income tax
return. Taxpayer, however, failed to perfect its safe-harbor elections by inadvertently
omitting the Required Election Statements from those returns. It is with respect to that
failure that Taxpayer requests an extension of time to file the elections; to amend its
original filed returns and supersede those returns with ones that include the Required
Election Statements as an attachment.

Taxpayer's request pertains to a regulatory election as defined in § 301.9100-1(b) of the
Procedure and Administration Regulations, as the due date for the making the safe-
harbor election is prescribed by § 1.263(a)-5(f) of the Income Tax Regulations.
Accordingly, the Commissioner has the authority under §§ 301.9100-1 and 301.9100-3,
to grant Taxpayer’s request for an extension of time to file the safe-harbor elections for
Tax Year 1.

The information submitted, and representations made by Taxpayer establish that
Taxpayer acted reasonably and in good faith under § 301.9100-3(b)(1) and (2).
Taxpayer requested relief before its failure to properly make the regulatory election was
discovered by the Commissioner. Additionally, despite Taxpayer’s reasonable reliance
on qualified tax professionals to prepare its Federal income tax return for Tax Year 1,
the required election statements were inadvertently omitted from Taxpayer’s return.
Accordingly, Taxpayer will be considered to have acted reasonably and in good faith.

Moreover, Taxpayer should not be deemed to have acted unreasonably or in a manner
lacking good faith. Taxpayer’s representations indicate that none of the circumstances
listed in § 301.9100-3(b)(3) apply.

PLR-119892-25
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Based on Taxpayer’s representation of the facts, granting an extension of time to file the
election will not prejudice the interests of the government under § 301.9100-3(c)(1).
Taxpayer has represented that granting relief would not result in a lower tax liability in
the aggregate for all taxable years affected by the election than would have resulted
had Taxpayer timely made the election (taking into account the time value of money).
Further, Taxpayer has represented that the period of limitations on assessment under §
6501(a) has not closed for Taxpayer’s Tax Year 1.

CONCLUSION

Based solely on the facts submitted and the representations made, we conclude that
Taxpayer acted reasonably and in good faith, and that granting the request will not
prejudice the interests of the government. Accordingly, the requirements of §§
301.9100-1 and 301.9100-3(b)(1) of the regulations have been satisfied.

Taxpayer is granted an extension of time until 60 days following the date of this ruling to
file amended tax returns electing safe harbor treatment of its success-based fees under
§ 4.01(3) of Rev. Proc. 2011-29. The amended returns must include an election
statement stating that Taxpayer is electing the safe harbor for success-based fees,
identifying the transactions, 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
appropriate parties. 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
Federal income tax consequences of any aspect of any transaction or item discussed or
referenced in this ruling under any other provision of the Code. In particular, no opinion
is expressed or implied as to whether Taxpayer properly included the correct costs as
its success-based fees subject to the election, or whether Taxpayer’s transaction was
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 must be attached to Taxpayer’s Federal income 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, a copy of this letter is
being sent to your authorized representatives.

PLR-119892-25
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Sincerely,

RONALD J. GOLDSTEIN
Branch Chief, Branch 2
Office of the Associate Chief Counsel
(Income Tax & Accounting)

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