IRS grants extra time for Section 338(g) election

Plain-English summary

A domestic parent intended to make a § 338(g) election for a controlled foreign corporation's acquisition of a target's stock but failed to file a valid election on time. The parent represented that it would have made the election regardless of the Tax Cuts and Jobs Act, the relevant assessment periods remained open, and it was not changing a position subject to an accuracy-related penalty. Based on the submitted information, affidavits, and representations, the IRS found that the parent acted reasonably and in good faith and that relief would not prejudice the government's interests. It granted 60 days to file Form 8023 and 150 days for affected parties to file or amend returns consistently with the election. The relief was conditioned on aggregate tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: Could the domestic parent receive extra time to make a § 338(g) election for its foreign subsidiary's target acquisition?
• Outcome: Approved
• 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: 202104006                                              Third Party Communication: None
 Release Date: 1/29/2021                                        Date of Communication: Not Applicable
 Index Number: 9100.06-00
                                                                Person To Contact:
 ----------------------------                                   -------------------, ID No. -----------------
 -----------------------------------                            Telephone Number:
 --------------------                                           --------------------
 ----------------------------                                   Refer Reply To:
                                                                CC:CORP:B05
                                                                PLR-111753-20
                                                                Date:
                                                                November 04, 2020




Legend


Parent                                       = -----------------------------------------
                                             -----------------------

ForeignSub                                   = ------------------------------------------------

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

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

Company Officials                            =        -------------------------------------------------
                                                      -----------------------------------

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


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

This letter responds to a letter dated April 17, 2020, submitted on behalf of Parent, the
U.S. shareholder of ForeignSub, requesting an extension of time under §301.9100-3 of
the Procedure and Administration Regulations to file an election. Parent is requesting
an extension to file a “section 338 election” under section 338(g) with respect to an
acquisition of the stock of Target (sometimes hereinafter referred to as the “Election”),
on Date 1. The material information submitted is summarized below.

Parent is the common parent of a consolidated group (the “Parent Group”). Parent is
also the United States shareholder (as defined in section 951(b)) of ForeignSub. Parent
has represented that on Date 1 ForeignSub satisfied the definition of a qualified stock
purchase within the meaning of section 338(d)(3) with respect to an acquisition of the
stock of Target.

Parent has represented that ForeignSub is a controlled foreign corporation as defined in
section 957 (taking into account section 953(c)) and is not required under §1.6012-2(g)
(other than §1.6012-2(g)(2)(i)(b)(2)) to file a United States income tax return for its
taxable year that includes the acquisition date.

Parent, as the United States shareholder of the foreign purchasing corporation,
ForeignSub, intended to file the Election, but for various reasons a valid Election was
not filed. 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.

Parent has represented that it would have made the Election as of the election due date
regardless of the enactment of the Tax Cuts and Jobs Act, P.L. 115-97 (“TCJA”) and the
issuance of regulations relating to the TCJA.

The period of limitations on assessment under section 6501(a) has not expired for the
taxable year in which the acquisition occurred, the taxable year in which the Election
should have been filed, or any taxable years that would have been affected by the
Election had it been timely filed. Parent 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 section 6662 at the time it requested relief (taking into account any qualified
amended return filed within the meaning of §1.6664-2(c)(3)) 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 “section 338 election”
or a “section 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 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 Parent to file the Election, provided 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.

Information, affidavits, and representations submitted by Parent and Company Officials
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 Parent 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 60 days from the date on this letter, for Parent to file the Election.

WITHIN 60 DAYS OF THE DATE ON THIS LETTER, Parent must file the Election on
Form 8023, in accordance with §1.338-2(d) and (e)(3) and the instructions to the form.
A copy of this letter must be attached to Form 8023.

WITHIN 150 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 section 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.

Parent must also deliver written notice of the election (and a copy of Forms 8023 and
8883, their attachments and instructions) to each U.S. person (other than a member of
the affiliated group of which the purchasing corporation is a member) selling or holding
stock in Target in accordance with §1.338-2(e)(4).

The above extension of time is conditioned on the taxpayers’ 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.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. In particular, we express no opinion as to: (1) whether the acquisition of the
stock of Target qualifies as a “qualified stock purchase” under section 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
Parent and Company Officials. 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 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. In accordance with the Power of
Attorney on file with this office, copies of this letter are being sent to your authorized
representative.

                                           Sincerely,


                                           _Thomas I. Russell______
                                           Thomas I. Russell
                                           Chief, Branch 1
                                           Office of Associate Chief Counsel (Corporate)




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