Parties received 45 days to file a late section 336(e) election statement

Plain-English summary

A partnership purchased all the stock of an S corporation, which later converted into a disregarded limited liability company. The parties signed a timely binding agreement to make a section 336(e) election so the stock sale could be treated as an asset disposition, but the required election statement was not filed with the S corporation's return. The IRS found that the parties acted reasonably and in good faith and requested relief before the IRS discovered the omission. It granted 45 days to file the election statement and 120 days for all affected parties to file or amend returns consistently with the election. The relief was conditioned on the parties' aggregate tax liabilities, including the time value of money, being no lower than if the election statement had been timely filed.

Ruling snapshot

• Question: May the parties file their omitted section 336(e) election statement after the regulatory deadline?
• Outcome: approved, with 45 days for the election statement and 120 days for consistent returns
• 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: 201943016                                                 Third Party Communication: None
Release Date: 10/25/2019                                          Date of Communication: Not Applicable
Index Number: 336.05-00, 9100.22-00
                                                                  Person To Contact:
                                                                  --------------------------- ---
-------------------                                               ID No. ------------------
---------------------------
---------------------------------                                 Telephone Number:
----------------------------                                      ----------------------
                                                                  Refer Reply To:
                                                                  CC:CORP:4
                                                                  PLR-112300-19
                                                                  Date:
                                                                  July 23, 2019




Legend

LLC                        =         -------------------------------------------------------------
------------------------------------------------------------

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

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

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

State B                    =        -------

Shareholder                =        ---------------------------------------------------------------------------------
-------------------------------------------
------------------------------------------------------------

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

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

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

Company Officials =                  -------------------
----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
PLR-112300-19                                             2

                                     ----------------------
--------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------

Tax Professionals =                  ------------------------------------
------------------------------------------------------
--------------------------------------------------

                                     ----------------------------------
-------------------------------------------------
--------------------------------------------------


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

This letter responds to a letter dated May 20, 2019, submitted on behalf of LLC, as
successor of S Corporation, and joined by Purchaser and Shareholder (collectively, “the
Parties”), requesting an extension of time under §301.9100-3 of the Procedure and
Administration Regulations to make an election. Additional information was submitted
subsequently.

The Parties are requesting an extension of time to file an election statement under
§1.336-2(h)(3)(iii) (the “Election Statement”) with respect to Shareholder’s disposition of
all of the outstanding stock of S Corporation on Date 1. The material information
submitted is summarized below.

On Date 1, Purchaser, a State A limited liability company that is taxed as a partnership
for federal income tax purposes, acquired all of the stock of S Corporation, a State B
corporation that elected to be treated as an S corporation for federal income tax
purposes, from Shareholder (the “Disposition”). It has been represented that the
Disposition qualified as a “qualified stock disposition” as defined in §1.336-1(b)(6). On
Date 2, S Corporation converted to a State B limited liability company, LLC. For federal
income tax purposes, LLC is disregarded as an entity separate from its owner,
Purchaser.

Prior to Date 3, the due date for S Corporation's tax return for the taxable year that
included Date 1, S Corporation, Purchaser, and Shareholder entered into a written,
binding agreement providing that a section 336(e) election would be made with respect
to the Disposition. However, for various reasons, the Election Statement was 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. It has
been represented that none of the Parties is seeking to alter a return position for which
an accuracy-related penalty has been or could be imposed under section 6662.
PLR-112300-19                                 3

Regulations promulgated under section 336(e) permit certain sales, exchanges, or
distributions of stock of a corporation to be treated as asset dispositions if: (i) the
disposition is a “qualified stock disposition” as defined in §1.336-1(b)(6); and (ii) 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 completing the following requirements: (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 must enter 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 must retain a copy of the written
agreement; and (iii) the S corporation target must attach 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.

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 (§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 §§301.9100-1 and 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 Officials,
and Tax Professionals explain the circumstances that resulted in the failure to timely file
the Election Statement. The information establishes that 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).

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
PLR-112300-19                                  4

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, LLC, as successor of 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-112300-19) of this
letter ruling.

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 all relevant 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 relevant
parties’ 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
Election Statement 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 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 Officials, and Tax Professionals.
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 letter ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.
PLR-112300-19                                  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,



                                        T. Ian Russell
                                        Chief, Branch 1
                                        Office of Associate Chief Counsel (Corporate)




cc: