Late section 338(g) election granted for foreign target acquisition

Plain-English summary

A domestic corporation acquired all the shares of a foreign target for cash and intended to make a section 338(g) election so the stock purchase would be treated as an asset acquisition. The election was not timely filed, but the purchaser generally filed consistently with an election and requested relief before the IRS discovered the omission. The IRS found that the purchaser acted reasonably and in good faith and that relief would not prejudice the government. It granted 45 days to file Form 8023 and required all relevant returns to be filed or amended within 120 days. The extension was conditioned on the purchaser's and target's aggregate tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: Could the purchaser receive an extension to make its missed section 338(g) election for the foreign target?
• Outcome: Yes, subject to the stated filing deadlines and tax-liability condition.
• Key authorities: IRC § 338; Treas. Reg. §§ 1.338-2 and 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201924005 Third Party Communication: None
Release Date: 6/14/2019 Date of Communication: Not Applicable
Index Number: 9100.06-00, 338.01-02
Person To Contact:
----------------------------- ---------------------, ID No. ------------------
--------------------------------- Telephone Number:
------------------------- ----------------------
Refer Reply To:
-------------------------------------------- CC:CORP:3
----------------------------------------------------------- PLR-135582-18
Date:
March 19, 2019

Legend

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

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

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

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

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

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

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

This letter responds to a letter dated December 10, 2018, 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 an election under § 338(g) 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-135582-18 2

   Purchaser is a domestic corporation. Target is a foreign corporation.

  On Date A, Purchaser acquired all of the outstanding shares of Target stock in

exchange for cash. Purchaser has represented that its acquisition of the shares of
Target stock constituted a qualified stock purchase (as defined in § 338(d)(3)).

   Target was not a controlled foreign corporation, a passive foreign investment

company, or a foreign personal holding company at any time during the portion of its
taxable year that ended on the acquisition date (as defined in § 338(h)(2)).

   The Election was due on Date B but for various reasons a valid Election was not

filed. Purchaser has represented that since Date A, it generally has filed its tax returns
consistently with an Election being in place for the purchase of Target. Purchaser has
further represented that to the extent its tax returns were filed inconsistently with an
Election being in place for the purchase of Target, the inconsistencies did not result in
Purchaser having a lower U.S. federal tax liability in the aggregate for all years to which
the Election applies than if the Election had been timely made (taking into account the
time value of money).

   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.

  Purchaser has 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.

  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

PLR-135582-18 3

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, Company

Official, and Tax Professional explain the circumstances that resulted in the failure to
timely file a valid Election. The information establishes 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).

   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, as described above.

   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 on and control number of the letter ruling.

     The above extension of time is conditioned on the taxpayers' (Purchaser 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.

PLR-135582-18 4

    We express no opinion as to: (1) whether the acquisition of the Target stock

qualifies as a qualified stock purchase (as defined in § 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 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, penalties and interest that would otherwise be applicable, if any, continue to
apply.

  This letter is directed only to the taxpayer(s) 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, 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)