Parties receive time to file a late section 336(e) election statement

Plain-English summary

A partnership purchased a controlling percentage of an S corporation's stock from its shareholders. Before the filing deadline, the parties signed binding agreements to make a section 336(e) election so the stock sale could be treated as an asset disposition, but the election statement and tax return were not timely filed. The IRS found that the parties reasonably relied on a qualified tax professional and requested relief before the IRS discovered the failure. It granted 45 days for the S corporation to amend its filed return and attach the election statement and ruling. All affected parties also had 120 days to file consistent returns, and aggregate tax liability could not be lower than if the election had been timely made.

Ruling snapshot

• Question: Could the S corporation file its section 336(e) election statement after the regulatory deadline?
• Outcome: approved
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1(b)(6), 1.336-2(h)(3), and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201730005 Third Party Communication: None
Release Date: 7/28/2017 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:B05
PLR-102645-17
Date:
May 01, 2017

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

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

Shareholders = -----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
--------------------------

X = --------

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

Date 2 = -----------------------

Date 3 = --------------------------

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

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

Company Official = -------------------------------------------------------------------

Tax Professional = ----------------------------
PLR-102645-17 2

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

This letter responds to a letter from your authorized representative, dated January 17,
2017, requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of the
Procedure and Administration Regulations to file an election. Purchaser, S Corporation,
and Shareholders (collectively, the “Parties”) are requesting an extension of time for
S Corporation to file an election statement under § 1.336-2(h)(3)(iii) of the Income Tax
Regulations (the “Election Statement”) with respect to Purchaser’s acquisition of X% of
the stock of S Corporation from Shareholders on Date 1. Additional information was
submitted in correspondence dated March 22, 2017. 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 X% of the stock of S Corporation, an
S corporation formed under the laws of State B, from Shareholders (the “Disposition”).
The Parties represent that the Disposition qualified as a “qualified stock disposition” as
defined in § 1.336-1(b)(6).

Prior to Date 2, the due date for S Corporation’s tax return for the taxable year that
included Date 1, the Parties entered into two written, binding agreements providing that
a section 336(e) election would be made with respect to the Disposition. The Election
Statement and S Corporation’s tax return for the taxable year ending Date 1 were
required to be filed by Date 2. However, for various reasons, the tax return and the
Election Statement were not timely filed. Subsequently, a request was submitted under
§ 301.9100-3 of the Procedure and Administration Regulations for an extension of time
to file the Election Statement, and the tax return was filed on or about Date 3. 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.

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.
PLR-102645-17 3

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 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 will not prejudice the interests of the
government.

Information, affidavits, and representations submitted by the Parties, Company Official,
and Tax Professional explain the circumstances that resulted in the failure to timely file
the Election Statement. The information establishes that the Parties reasonably relied
on a qualified tax professional who failed to timely file, or to advise them to timely file,
the Election Statement, and 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 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 45 days from the date on this letter, for S Corporation to file the
Election Statement with respect to the Disposition.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, S Corporation, having already
filed a return as though a valid Election Statement was filed, must amend its previously
filed return to attach a copy of this ruling letter along with the Election Statement to such
return. Alternatively, if S Corporation files its return electronically, this requirement may
be satisfied by attaching a statement to the return that provides the date on, and the
control number of, this ruling letter (May 01, 2017; PLR-102645-17).
PLR-102645-17 4

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., the Parties’) tax
liabilities (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 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 Election
Statement or the tax return for the taxable year ending Date 1 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 or the
tax return 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 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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                   Sincerely,


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