Purchaser received 45 days to make a late section 338 election

Plain-English summary

A corporation acquired all the stock of a foreign target that had been a controlled foreign corporation and represented that the acquisition was a qualified stock purchase. The purchaser intended to make a section 338(g) election so the stock acquisition would be treated as an asset acquisition, but its qualified tax professional failed to make or recommend the election. The purchaser sought relief before the IRS discovered the missed deadline, and the relevant assessment periods remained open. The IRS granted 45 days to file Form 8023 and 120 days for affected parties to file or amend returns consistently with section 338 treatment. Relief was conditioned on aggregate tax liability not being lower than it would have been with a timely election, and the IRS did not rule that the acquisition actually was a qualified stock purchase.

Ruling snapshot

• Question: Could the purchaser receive extra time to make a section 338(g) election for its acquisition of the foreign target?
• Outcome: approved
• Key authorities: IRC § 338; Treas. Reg. §§ 1.338-2(d), 301.9100-1, 301.9100-2, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201738002                                              Third Party Communication: None
Release Date: 9/22/2017                                        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:3
                                                               PLR-103110-17
                                                               Date:
                                                               June 22, 2017


Legend

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

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

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

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

Tax Professional
& Company Official =                          --------------------------
------------------------------------------------------------------------
---------------------------------------------------------------------------


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

This letter responds to a letter dated January 18, 2017, 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. Additional information was received in a letter dated
May 12, 2017. The material information is summarized below.

Target is a foreign corporation and was a controlled foreign corporation, within the
meaning of § 957(a), prior to its acquisition. On Date A, Purchaser acquired all of the

PLR-103110-17                                   2

stock of Target. 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 (taking into
account any qualified amended return filed within the meaning of § 1.6664-2(c)(3)) 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 year in which the acquisition occurred, the taxable year in which the
Election should have been filed, or any taxable year 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 301.9100-3 are
satisfied, and granting relief will not prejudice the interests of the government.

Information, affidavits, and representations submitted by Purchaser and Tax
Professional & Company Official explain the circumstances that resulted in the failure to
timely 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

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Election, and that the request for relief was filed before the failure to timely 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 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 the stock of Target.

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

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

PLR-103110-17                                  4

Purchaser and Tax Professional & Company Official. 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
                                           Chief, Branch 3
                                           Office of Associate Chief Counsel (Corporate)