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

Plain-English summary

Purchasers acquired all stock of an S corporation from its shareholders, and the parties had timely signed a binding agreement to make a section 336(e) election that would treat the stock sale as an asset disposition. The target's return and required election statement were not timely filed because the parties reasonably relied on a tax professional who failed to file or advise them to file the statement. The IRS found that the parties acted reasonably and in good faith and granted 45 days to file the election statement. It also required all affected returns to be filed or amended within 120 days and conditioned relief on aggregate tax liabilities not being lower than they would have been with a timely election, taking the time value of money into account.

Ruling snapshot

• Question: May parties to an S corporation stock acquisition file a late section 336(e) election statement after professional-adviser error?
• 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, and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202005013 Third Party Communication: None
Release Date: 1/31/2020 Date of Communication: Not Applicable
Index Numbers: 9100.22-00, 336.05-00
Person To Contact:
----------------------------- ---------------------, ID No. ------------------
-------------------------------------------- Telephone Number:
----------------------------- ----------------------
-------------- Refer Reply To:
---------------------------------- CC:CORP:B05
PLR-112295-19
Date:
October 31, 2019

LEGEND

Purchasers = -----------------------------
--------------------------------

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

Sellers = ----------------------------
----------------------------

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

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

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

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

This letter responds to a letter dated May 17, 2019, submitted on behalf of Purchasers,
S Corporation Target, and Sellers (collectively, the “Parties”), requesting an extension of
time under §301.9100-3 of the Procedure and Administration Regulations to file an
election. 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 Purchasers’
acquisition of all of the stock of S Corporation Target from Sellers on Date 1. Additional
information was submitted subsequently. The material information submitted is
summarized below.

                                          2

PLR-112295-19

On Date 1, Purchasers acquired all of the stock of S Corporation Target from Sellers
(the “Disposition”). It has been represented that the Disposition qualified as a “qualified
stock disposition” as defined in §1.336-1(b)(6).

Prior to Date 1, the Parties entered into a written, binding agreement providing that a
section 336(e) election would be made with respect to the Disposition. For various
reasons, however, the Election Statement and S Corporation Target's tax return for the
taxable year ending on Date 1 were not filed on a timely basis. 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.

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

                                         3

PLR-112295-19

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 §§301.9100-1 and 301.9100-3 are
satisfied, and granting relief will not prejudice the interests of the government.
Information, affidavits, and representations submitted by the Parties, Company Official
and Tax Professional explain the circumstances that resulted in the failure to timely file
the Election Statement. The information establishes that the Parties reasonably relied
on a qualified tax professional who failed to timely file, or to advise them to timely file,
the Election Statement, and 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) 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
with respect to the Disposition.

WITHIN 45 DAYS OF THE DATE ON THIS LETTER, S Corporation Target must file the
Election Statement in accordance with §1.336-2(h)(3)(iii). The Election Statement must
be attached to S Corporation Target's tax return for the taxable year including Date 1.
Alternatively, if S Corporation Target 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 and control number (PLR-112295-19) 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 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.

                                          4

PLR-112295-19

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, filing 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, and
Tax Professional. However, the Director should verify all essential facts. In addition,
notwithstanding that an extension is granted under §301.9100-3 to file the section
336(e) election, penalties and interest that would otherwise be applicable, if any,
continue to apply.

This letter is directed only to the taxpayers 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,




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

cc: