Purchaser receives late section 338 election relief

Plain-English summary

A purchaser acquired all stock of a foreign target for cash and intended to elect under IRC § 338(g) to treat the stock purchase as an asset acquisition. The election was missed because the purchaser reasonably relied on a qualified tax professional. The IRS granted 45 days to file Form 8023 and 120 days for all relevant parties to file consistent original or amended returns and provide required notices. Relief was conditioned on aggregate tax liability not being lower than it would have been with a timely election, and the ruling did not decide whether the acquisition was a qualified stock purchase.

Ruling snapshot

• Question: May the purchaser make a late § 338(g) election for the foreign target acquisition?
• Outcome: Approved, subject to election, return-filing, notice, and aggregate-tax-liability conditions
• Key authorities: IRC § 338; Treas. Reg. §§ 1.338-2 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201632019 Third Party Communication: None
Release Date: 8/5/2016 Date of Communication: Not Applicable
Index Number: 338.01-02, 9100.06-00
Person To Contact:
-------------------- -----------------------, ID No. ----------------
-------------------- Telephone Number:
----------------------------- ------------------
-------------------------------- Refer Reply To:
CC:CORP:5
PLR-141276-15
Date:
May 05, 2016

Legend

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

Target = ------------------------------------

Date A = ----------------

Date B = -----------------------

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

Tax Professional = ------------------------------------------------------------------------
---------------

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

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

    This letter responds to a letter dated December 17, 2015, submitted on behalf of

Purchaser, requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations to file an election. Purchaser is requesting an extension to
file a “§ 338 election” under § 338(g) of the Internal Revenue Code (the “Code”) with
respect to Purchaser’s acquisition of the stock of Target (sometimes hereinafter referred
to as the “Election”) on Date A. The material information is summarized below.
PLR-141276-15 2

     Target is a foreign corporation. Taxpayer was a controlled foreign corporation,

within the meaning of § 957(a), prior to its acquisition. On Date A, Purchaser acquired
all of the stock of Target in exchange for cash. Purchaser has represented that its
acquisition of the stock of Target qualified as a “qualified stock purchase,” as defined in
§ 338(d)(3).

  Purchaser has also represented that it is not seeking to alter a return position for

which an accuracy-related penalty has been or could be imposed under § 6662 at the
time Purchaser requested relief and for which the new return position requires or
permits a regulatory election for which relief is requested.

    Purchaser intended to file the Election. The Election was due on Date B, but for

various reasons a valid Election was not filed. After the due date for the Election, it was
discovered that the Election had not been filed. Subsequently, this request was
submitted, under § 301.9100-3 for an extension of time to file the Election. The period
of limitations on assessment under § 6501(a) has not expired for Purchaser’s or
Target’s taxable years in which the acquisition occurred, the taxable years in which the
Election should have been filed, or any taxable years that would have been affected by
the Election had it been timely filed.

   Section 338(a) permits certain stock purchases to be treated as asset

acquisitions if: (1) the purchasing corporation makes or is treated as having made a
“§ 338 election” or a “§ 338(h)(10) election;” and (2) the acquisition is a “qualified stock
purchase.”

   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).

  In this case, the time for filing the Election is fixed by the regulations (i.e.,

§ 1.338-2(d)). Therefore, the Commissioner has discretionary authority under
§ 301.9100-3 to grant an extension of time for Purchaser to file the Election, provided
Purchaser acted reasonably and in good faith, the requirements of §§ 301.9100-1 and
PLR-141276-15 3

301.9100-3 are satisfied, and granting relief will not prejudice the interests of the
government.

    Information, affidavits, and representations submitted by Purchaser, Company

Officials, and Tax Professional explain the circumstances that resulted in the failure to
file a valid Election. The information establishes that Purchaser reasonably relied on a
qualified tax professional who failed to make, or advise Purchaser to make, the Election,
and that the request for relief was filed before the failure to make the 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 Purchaser has shown that it 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
Purchaser to file the Election with respect to the acquisition of stock of Target.

   WITHIN 45 DAYS OF THE DATE ON THIS LETTER, Purchaser must file the

Election of Form 8023, in accordance with § 1.338-2(d) and the instructions to the form.
A copy of this letter must be attached to Form 8023.

    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 as a § 338 transaction for the taxable year in which the
transaction was consummated (and for any other affected taxable year). A copy of this
letter and a copy of Form 8883 must be attached to any tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy the requirement of
attaching a copy of this letter by attaching a statement to their return that provides the
date and control number of the letter ruling.

   Purchaser must also deliver written notice of the Election (and a copy of Forms

8023 and 8883, their attachments and instructions) to U.S. persons selling or holding
stock in Target. See §1.338-2(e)(4).

     The above extension of time is conditioned on the taxpayers’ (Purchaser’s and

Target’s) tax liability (if any) being not lower, in the aggregate, for all years to which the
Election applies, than it would have been if the Election had been timely made (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 acquisition of the Target stock

qualifies as a “qualified stock purchase” under § 338(d)(3); or (2) any other tax
consequences arising from the Election.
PLR-141276-15 4

   In addition, we express no opinion as to the tax consequences of filing the

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 Election late that are not specifically set forth in the above ruling. For purposes of
granting relief under § 301.9100-3, we relied on certain statements and representations
made by Purchaser, 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 Election, penalties and interest that would
otherwise be applicable, if any, continue to apply.

  This letter is directed only to the taxpayer 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
                                    Ken Cohen
                                    Senior Technician Reviewer, Branch 3
                                    Office of Associate Chief Counsel (Corporate)

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