Grants more time to file a loss-property basis election statement

Plain-English summary

A corporate parent requested extra time to file the statement required for a joint election under section 362(e)(2)(C). A subsidiary had transferred stock with a tax basis above fair market value to a controlled foreign corporation in a transaction represented to qualify under section 351. The election would reduce the transferor's basis in the stock received rather than limit the transferee's basis in the loss property. The required statement was not filed with the parent's timely return. Based on the submitted affidavits and representations, the IRS found that the parent acted reasonably and in good faith and that relief would not prejudice the government. It granted 60 days from the ruling date to file the statement for the first transfer, subject to a condition protecting the aggregate federal tax liability of the relevant parties.

Ruling snapshot

• Question: Could the corporate parent receive an extension to file the section 362(e)(2)(C) election statement for the subsidiary's first stock transfer?
• Outcome: Approved, with 60 days from the ruling date to file the statement.
• Key authorities: IRC §§ 351 and 362(e)(2); Treas. Reg. §§ 1.362-4(d), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201832012                                              Third Party Communication: None
Release Date: 8/10/2018                                        Date of Communication: Not Applicable
Index Numbers: 362.01-00, 9100.22-00
                                                               Person To Contact:
---------------------                                          -------------------, ID No. --------------
---------------------------                                    Telephone Number:
-----------------                                              ----------------------
--------------------------                                     Refer Reply To:
----------------------------------------                       CC:CORP:B04
                                                               PLR-135596-17
In Re: ---------------------------------------                 Date:
                                                               May 15, 2018




Legend

Taxpayer                            =         ----------------------
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Sub 1                               =         -------------------------------------------
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F Corp                              =         ----------------------------------------
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DRE 1                               =         --------------------------------
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DRE 2                               =         --------------------------------
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DRE 3                               =         --------------------------------
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DRE 4                               =         --------------------------------
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PLR-135596-17                                             2

CFC 1                               =         -------------------------------
                                             ------------------------------------------------------------------------
                                             -------------------------------------------
                                             -------------------------

CFC 2                               =         -------------------------
                                             ------------------------------------------------------------------------
                                             --------------------------------------------------------------
                                             -------------------------------------------------------

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

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

x                                   =        --------------------------

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

Tax Professional                    =         -------------------------
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Dear --------------:

       This letter responds to a letter dated November 28, 2017, submitted by your
authorized representative, requesting an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations to file an election. The extension is being
requested in order to allow Taxpayer, as common parent and agent of the consolidated
group, to file the election statement described in § 1.362-4(d)(3) ("Section 362(e)(2)(C)
Statement") with respect to Sub 1’s transfer of certain stock to CFC 1 as described in
Transfer 1 below. Additional information was submitted in subsequent letters. The
material information is summarized below.

      Taxpayer is a corporation that is the common parent of a consolidated group.
Immediately prior to Date 1, Taxpayer indirectly owned, through members of its
consolidated group, all of the stock of Sub 1, and Sub 1 directly owned x% of the stock
of F Corp and, through DRE 1, DRE 2, and DRE 3 (each of which was an entity
disregarded as separate from Sub 1 for federal income tax purposes), all of the stock of
CFC 1. In addition, CFC 1 owned, through DRE 4 (an entity that was disregarded as
separate from CFC 1 for federal income tax purposes), all of the stock of CFC 2. Each
of CFC 1 and CFC 2 was a controlled foreign corporation within the meaning of
§ 957(a).
PLR-135596-17                                3

       On Date 1, Sub 1 transferred its x% of F Corp stock, through DRE 1, DRE 2, and
DRE 3, to CFC 1 (“Transfer 1”), and CFC 1 immediately transferred the x% of F Corp
stock, through DRE 4, to CFC 2 (“Transfer 2”). Each of Transfer 1 and Transfer 2 was
represented by Taxpayer as qualifying as a tax-free transaction to which § 351 applies.
At the time of Transfer 1 and Transfer 2, the F Corp stock had a tax basis exceeding fair
market value.

       Section 362(e)(2)(A) generally provides that if property is transferred to a
corporation as a capital contribution or in an exchange to which § 351 applies and the
aggregate adjusted basis of the transferred property would, but for that provision,
exceed the fair market value of such property immediately after the transaction, then the
transferee corporation's basis in such property shall not exceed the fair market value of
such property.

       Under § 362(e)(2)(C), however, the transferor and transferee may make a joint
election to reduce the transferor's basis in the stock received to its fair market value,
and no reduction of the transferee's basis in the property received will be required.
Section 362(e)(2)(C) provides that such election shall be made at such time and in such
form and manner as the Secretary may prescribe and, once made, shall be irrevocable.
Section 362(e)(2)(A) does not apply, and the election under § 362(e)(2)(C), is not
available, to exchanges subject to § 362(e)(1).

      Generally, for transactions after September 3, 2013, rules for making elections
under § 362(e)(2)(C) are in § 1.362-4(d)(3). Date 1 is a date after September 3, 2013.

        In order to make the election under § 362(e)(2)(C), § 1.362-4(d)(1)(i) requires
that prior to the filing of the Section 362(e)(2)(C) Statement, the transferor and the
acquiring corporation enter into a written, binding agreement to elect to apply
§ 362(e)(2)(C), and § 1.362-4(d)(1)(ii) requires that the Section 362(e)(2)(C) Statement
be filed in accordance with the provisions of § 1.362-4(d)(3).

       Section 1.362-4(d)(3)(ii)(A) provides that if the transferor is required to file a
United States federal income tax return, the Section 362(e)(2)(C) Statement is filed by
the transferor.

      The Section 362(e)(2)(C) Statement was required to be filed on or with
Taxpayer's timely filed income tax return for the year ending Date 2. For various
reasons, however, Taxpayer failed to file the Section 362(e)(2)(C) Statement in a timely
manner. Taxpayer has represented that it does not seek to alter a return position for
which an accuracy-related penalty has been or could be imposed under § 6662 at the
time Taxpayer requested relief, and the new position requires or permits the election for
which relief is requested.
PLR-135596-17                                4

       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.

       Section 301.9100-1(b) defines the term "regulatory election" as an election
whose due date is prescribed by a regulation, revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin. 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. Section 301.9100-3 provides extensions of time for making regulatory
elections that do not meet the requirements of § 301.9100-2. 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 Section 362(e)(2)(C) Statement is fixed by § 1.362-
4(d)(3)(ii). Therefore, the Commissioner has discretionary authority under § 301.9100-3
to grant an extension of time for Taxpayer to file the Section 362(e)(2)(C) Statement,
provided Taxpayer 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
government.

        Information, affidavits, and representations submitted by Taxpayer, Company
Official, and Tax Professional explain the circumstances surrounding the failure to
timely file the Section 362(e)(2)(C) Statement. The information establishes that the
request for relief was filed before the failure to timely file the Section 362(e)(2)(C)
Statement was discovered by the Internal Revenue Service. See § 301.9100-3(b)(1)(i).

         Based on the facts and information submitted, including the affidavits submitted
and the representations made, we conclude that Taxpayer 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 60 days from the date on this
letter, for Taxpayer to file the Section 362(e)(2)(C) Statement regarding Transfer 1, in
the manner described in § 1.362-4(d)(3).

       This extension of time is conditioned on the federal tax liability (if any) of any
relevant party not being lower, in the aggregate, for all years to which the § 362(e)(2)(C)
election applies than it would have been if the Section 362(e)(2)(C) Statement had been
timely filed (taking into account the time value of money). No opinion is expressed as to
PLR-135596-17                                 5

the tax liability for the years involved. A determination thereof will be made by the
Director's office upon audit of the federal income tax returns involved.

        Except as expressly provided herein, no opinion is expressed or implied
concerning the tax consequences of any aspect of any transaction discussed in this
letter. Specifically, no opinion is expressed concerning the basis or fair market value of
any asset, whether Transfer 1 or Transfer 2 are described in § 351, or whether
Taxpayer is substantively entitled to make a § 362(e)(2)(C) election. In addition, no
opinion is expressed as to the tax effects or consequences of filing the Section
362(e)(2)(C) Statement late under the provisions of any other section of the Code or
regulations, or as to the tax treatment of any conditions existing at the time of, or effects
resulting from, filing the Section 362(e)(2)(C) 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 that Taxpayer, Company Official, and Tax Professional
made under penalties of perjury. However, the Director should verify all essential facts.
Moreover, notwithstanding that an extension is granted under § 301.9100-3 to file the
Section 362(e)(2)(C) Statement, any penalties and interest that would otherwise be
applicable still apply.

       The letter 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.

       A copy of this letter must be attached to any income tax return to which it is
relevant. Alternatively, taxpayers filing their returns electronically may satisfy this
requirement by attaching a statement to the return that provides the date and control
number of this letter ruling.

        In accordance with the Power of Attorney on file with this office, copies of this
letter are being sent to your authorized representatives.

                                           Sincerely,

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