Late qualified small business stock election approved

Plain-English summary

A taxpayer sold qualified small business stock but failed to make the section 1045 election on its return. That election can defer gain when replacement qualified small business stock is purchased during the 60-day period beginning on the sale date, subject to the statutory limits. The IRS concluded that the taxpayer acted reasonably and in good faith and that late relief would not prejudice the government. It granted permission to make the late section 1045 election.

Ruling snapshot

• Question: May the taxpayer make a late section 1045 election after selling qualified small business stock?
• Outcome: approved
• Key authorities: IRC § 1045; Treas. Reg. § 301.9100-3; Rev. Proc. 98-48

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201650010 Third Party Communication: None
Release Date: 12/9/2016 Date of Communication: Not Applicable
9100.00-00, 1045.00-00
Person To Contact:
-------------------------------------------------------- ---------------------, ID No. ------------------
------------------------------------------------- Telephone Number:
-------------------------------------- ----------------------
Refer Reply To:
CC:ITA:B04
PLR-109692-16
Date:
July 26, 2016

Legend:

Taxpayer = ----------------------------------------------

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

This letter ruling is in reply to Taxpayer’s request that it be permitted to make a late
election under the authority contained in § 301.9100-3 of the Regulations on Procedure
and Administration. Taxpayer, for the ------- tax year, failed to make an election under
§ 1045 of the Internal Revenue Code following the sale of certain small business stock.
Taxpayer now seeks a ruling granting it permission to make the election.

Section 1045(a) of the Internal Revenue Code provides, in part, that in the case of any
sale of qualified small business stock held by a taxpayer other than a corporation for
more than 6 months and with respect to which such taxpayer elects the application of
this section, gain from such sale shall be recognized only to the extent that the amount
realized on such sale exceeds—

(1) the cost of any qualified small business stock purchased by the taxpayer during the
60-day period beginning on the date of such sale, reduced by

(2) any portion of such cost previously taken into account under this section.

Rev. Proc. 98-48, 1998-2 C.B. 367, provides at section 3.01 that a § 1045 election must
be made on or before the later of December 31, 1998, or the due date (including
extensions) for filing the income tax return for the taxable year in which the qualified
small business stock is sold. Rev. Proc. 98-48 generally provides at section 3.02 that
the election is made by:
PLR-109692-16 2

(a) reporting the entire gain from the sale of qualified small business stock on
Schedule D, Capital Gains and Losses, of the return in accordance with
instructions for Schedule D;

(b) writing “section 1045 rollover” directly below the line on which the gain is
reported; and

(c) entering the amount of the gain deferred under § 1045 on the same line as (b)
above, as a loss, in accordance with the instructions for Schedule D.

Section 301.9100-3(a) provides that requests for extensions of time for regulatory
elections that do not meet the requirements of § 301.9100-2 (automatic extensions),
such as the instant case, must be made under the rules of § 301.9100-3. Requests for
relief subject to § 301.9100-3 will be granted when the taxpayer provides evidence to
establish that the taxpayer acted reasonably and in good faith, and that the granting of
relief will not prejudice the interests of the government.

Based on the facts and information submitted and the representations made, we
conclude that Taxpayer has acted reasonably and in good faith, and that the granting of
relief will not prejudice the interests of the government. Accordingly, Taxpayer is
granted permission to make a late election under § 1045.

The rulings contained in this letter are based upon information and representations
submitted by the 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 or 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. This ruling is directed only to the taxpayer that requested it. Section
6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, we are sending a copy
of this letter to your authorized representatives.

                                      Sincerely,


                                      J. Peter Baumgarten
                                      Assistant to the Branch Chief, Branch 4
                                      Office of Associate Chief Counsel
                                      (Income Tax & Accounting)