S corporation receives more time for a section 336(e) election statement

Plain-English summary

A partnership bought all stock of an S corporation in a transaction represented to be a qualified stock disposition. The parties timely signed a binding agreement to make a section 336(e) election, which would treat the stock sale as an asset disposition, but the S corporation did not timely file its return with the required election statement. The IRS found that the parties reasonably relied on a tax professional and otherwise acted reasonably and in good faith. It allowed 45 days to complete the election-statement filing requirements and 120 days for all relevant parties to file consistent returns, subject to a condition protecting the government's aggregate tax position.

Ruling snapshot

• Question: Could the S corporation file its section 336(e) election statement after the regulatory deadline?
• Outcome: Approved, subject to filing deadlines and the stated aggregate-tax-liability condition.
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2, and 301.9100-1 through 301.9100-3

Full text (IRS public release)

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Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201611006 Third Party Communication: None
Release Date: 3/11/2016 Date of Communication: Not Applicable
Index Number: 9100.22-00, 336.05-00
Person To Contact:
------------------------ -----------------, ID No. ------------------
------------------------------------------------------------ Telephone Number:
------- ----------------------
-------------------------------------------------- Refer Reply To:
--------------------------- CC:CORP:2
PLR-122865-15
Date:
December 09, 2015

Legend

Purchaser = ------------------------------------------

S Corporation Shareholders = ------------------------------------------------

S Corporation Target = --------------------------------------------------------------

--

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Date 1 = ------------------------

State A = --------------

State B = ----------

Company Officials = ------------------------------

                                                   ------------------------
                                                  ---------------------------------------------------------------
                                                  -----------------------------------------------

Tax Professional = --------------------------------------
PLR-122865-15 2

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

This letter responds to a letter dated June 30, 2015, submitted on behalf of S
Corporation Shareholders and S Corporation Target, requesting an extension of time
under § 301.9100-3 of the Procedure and Administration Regulations to file an election.
S Corporation Shareholders and S Corporation Target are requesting an extension of
time for S Corporation Target to file an election statement under § 1.336-2(h)(3)(iii) of
the Income Tax Regulations (“Election Statement”) with respect to Purchaser’s
acquisition of the stock of S Corporation Target from S Corporation Shareholders on
Date 1. The material information submitted is summarized below.

On Date 1, Purchaser, a State A limited liability company that is treated as a partnership
for Federal income tax purposes, acquired all of the stock of S Corporation Target, a
State B limited liability company that has elected to be treated as an S corporation for
Federal income tax purposes, from S Corporation Shareholders in exchange for cash
(the “Disposition”). It has been represented that the Disposition qualified as a “qualified
stock disposition” as defined in § 1.336-1(b)(6).

Prior to the due date for S Corporation Target’s tax return for the taxable year that
included Date 1 (“Year 1”), Purchaser, S Corporation Shareholders, and S Corporation
Target entered into a written, binding agreement providing that a section 336(e) election
would be made with respect to the Disposition, but S Corporation Target did not timely
file its tax return for Year 1. Subsequently, this request was submitted, under
§ 301.9100-3 of the Procedure and Administration Regulations, for an extension of time
to file the Election Statement. It has been represented that none of Purchaser, S
Corporation Shareholders, or S Corporation Target is seeking to alter a return position
for which an accuracy-related penalty has been or could be imposed under section
6662.

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
PLR-122865-15 3

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 filing the Election Statement is fixed by the regulations (i.e., § 1.336-
2(h)(3)(iii)). Therefore, the Commissioner has discretionary authority under § 301.9100-
3 to grant an extension of time for S Corporation Target to file the Election Statement,
provided Purchaser, S Corporation Shareholders, and S Corporation Target 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 Purchaser, S Corporation
Shareholders, S Corporation Target, Company Officials, and Tax Professional explain
the circumstances that resulted in the failure to timely file the Election Statement. The
information establishes that Purchaser, S Corporation Shareholders, and S Corporation
Target reasonably relied on a qualified tax professional who failed to file, or advise them
to timely file, the Election Statement, and that the request for relief was filed before the
failure to 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 Purchaser, S Corporation Shareholders, and S Corporation Target 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 45 days from the
date on this letter, for S Corporation Target to file the Election Statement with respect to
the Disposition.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, S Corporation Target, having
already filed an amended return with the 336(e) election statement attached, must
attach a copy of this letter to S Corporation Target’s return. Alternatively, if S
PLR-122865-15 4

Corporation Target 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 and control number (PLR-122865-15) of this letter ruling.

WITHIN 120 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 taxpayers’ (i.e., Purchaser’s, S
Corporation Target’s, and S Corporation Shareholders’) tax liability (if any) being not
lower, in the aggregate, for all years to which the section 336(e) election applies than it
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 liability 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
Election Statement 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 Election Statement 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 taxpayers. However, the Director
should verify all essential facts. In addition, notwithstanding that an extension is
granted under § 301.9100-3 to file the Election Statement, penalties and interest that
would otherwise be applicable, if any, continue to apply.

This letter is directed only to the taxpayer(s) who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

Pursuant to the power of attorney on file in this office, a copy of this letter is being sent
to your authorized representative.

                                   Sincerely,



                                   Ken Cohen
                                   Senior Technician Reviewer, Branch 3
                                   Office of Associate Chief Counsel (Corporate)

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