S corporation received more time to file its section 336(e) election statement

Plain-English summary

An S corporation's sole shareholder sold at least 80 percent of its stock to two purchasers in a transaction represented to qualify as a qualified stock disposition. The parties timely entered a binding agreement to make a section 336(e) election, which would treat the stock sale as an asset disposition, but the required election statement was not attached to the corporation's timely return. The IRS found that the corporation reasonably relied on a qualified tax professional and sought relief before the IRS discovered the missed filing. It granted 45 days to file the election statement and 120 days for all relevant parties to file consistent returns. The relief was conditioned on aggregate tax liabilities not being lower than they would have been with a timely election.

Ruling snapshot

• Question: Could the parties receive an extension to file the election statement required for their section 336(e) election?
• Outcome: Approved, with 45-day and 120-day filing deadlines and a tax-liability condition.
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2(h), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                  Washington, DC 20224

Number: 201929018                                                 Third Party Communication: None
Release Date: 7/19/2019                                           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:01
In Re:                                                            PLR-134285-18
         ---------------------------------------------------      Date:
---------------------------------------                           April 16, 2019




LEGEND:

S Corporation              =        ---------------------------------------------------------------------------------
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Seller                     =        -------------------------
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Purchasers                 =        ---------------------
                                     ------------------------
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x                          =        ----

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

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

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

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

Tax Professional 1 =                 -------------------------
------------------------------------------------------------------------------------------------

PLR-134285-18                                             2

Tax Professional 2 =                 -------------------------------------
-----------------------------------------------------------------------------

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

       This letter responds to a letter dated November 13, 2018, submitted on behalf of
S Corporation, requesting an extension of time under § 301.9100-3 of the Procedure
and Administration Regulations to file an election. S Corporation is requesting an
extension of time to file the Election Statement under § 1.336-2(h)(3)(iii) (the “Election
Statement”) with respect to Seller’s disposition of x percent (at least 80 percent) of the
stock of S Corporation to Purchasers on Date 1. The material information is
summarized below.

       S Corporation is an S corporation incorporated in State A. Seller is an individual
who owned all the stock of S Corporation before the transaction described below.
Purchasers are two individuals. S Corporation, Seller, and Purchasers are collectively
the “Parties.”

       Seller and Purchasers made an agreement, effective as of Date 1, providing that
Purchasers would purchase x percent of the stock in S Corporation from Seller in
exchange for installment payments of cash (the “Disposition”). It has been represented
that the Disposition qualified as a “qualified stock disposition” as defined in § 1.336-
1(b)(6)(i). Subsequent to Date 1 but prior to Date 2, the due date of S corporation’s tax
return for the taxable year that includes Date 1, Seller and S Corporation entered into a
written, binding agreement to make a section 336(e) election. However, for various
reasons the Election Statement was not timely filed. Subsequently, this request was
submitted, under § 301.9100-3, for an extension of time to file the Election Statement.
The Parties have 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 at the time of the request for relief.

        Regulations promulgated under section 336(e) permit certain sales, exchanges
or distributions of stock of a corporation to be treated as an asset disposition 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

PLR-134285-18                                  3

(6) (the “Election Statement”), to its timely filed (including extensions) federal income tax
return for the taxable year that includes the disposition date.

       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 for 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 to file the Election Statement, provided the Parties acted
reasonably and in good faith, the requirements of §§ 301.9100-3 are satisfied, and
granting relief would not prejudice the interests of the government.

         Information, affidavits, and representations submitted by the Parties, Company
Official, Tax Professional 1 and Tax Professional 2 explain the circumstances that
resulted in the failure to timely file the Election Statement. The information establishes
that S Corporation reasonably relied on a qualified tax professional who failed to timely
file, or advise Target to timely file, the Election Statement, and that the request for relief
was filed before the failure to timely 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, to file the Election
Statement.

       WITHIN 45 DAYS OF THE DATE ON THIS LETTER, S Corporation must file the
Election Statement in accordance with § 1.336-2(h)(3)(iii). The Election Statement must
be attached to S Corporation's tax return for the taxable year including Date 1. In
addition, a copy of this letter must be attached to S Corporation's return. Alternatively, if
S Corporation files its return electronically, it may satisfy the requirement of attaching a
copy of this letter to the return by attaching a statement to its return that provides the
date on this letter and control number (PLR-134285-18) of this letter ruling.

PLR-134285-18                                  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 return
or making the section 336(e) 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, making the section 336(e) election 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 Parties, Company
Official, Tax Professional 1 and Tax Professional 2. 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.

PLR-134285-18                                  5


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




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