Parent gets 75 days for late Section 338(g) election

Plain-English summary

A consolidated group's foreign subsidiary acquired all the stock of another foreign corporation, but the parent failed to file the intended Section 338(g) election on time after relying on a qualified tax professional. The IRS found reasonable conduct, good faith, and no government prejudice. It granted 75 days to file Form 8023 and 150 days for all relevant parties to file or amend returns consistently with the asset-acquisition treatment. The parent must also notify affected U.S. stockholders. Relief is conditioned on aggregate tax liability not being lower than if the election had been timely, and the IRS did not decide whether the acquisition was a qualified stock purchase.

Ruling snapshot

• Question: May the parent receive extra time to make a Section 338(g) election for the foreign subsidiary's stock acquisition?
• Outcome: Approved. Form 8023 is due within 75 days, with consistent returns due within 150 days.
• Key authorities: IRC § 338; Treas. Reg. §§ 1.338-2 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202114014 Third Party Communication: None
Release Date: 4/9/2021 Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.06-00,
338.00-00, 338.01-00, Person To Contact:
338.01-02 ----------------------------,
ID No. -----------------
----------------------------------------- Telephone Number:
------------------------------- --------------------
---------------------------- Refer Reply To:
------------------------------------ CC:CORP:B2
PLR-117759-20
Date:
January 12, 2021

Legend

Parent = --------------------------------------------------------------------------
--------------------------------------------------------------------------
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FSub = -----------------------------------

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

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

Country X = ---------

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

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

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

This letter responds to a letter dated August 12, 2020, submitted on behalf of Parent,
requesting an extension of time under §301.9100-3 of the Procedure and Administration
Regulations to file an election. Parent is requesting an extension of time to file an
election under section 338(g) (the “Election”) with respect to FSub’s acquisition of the
stock of Target on Date 1. The material information submitted is summarized below.
PLR-117759-20 2

Parent is the common parent of a consolidated group. Parent wholly owns FSub, a
Country X corporation. Parent has represented that, on Date 1, FSub acquired all the
stock of Target, a Country X corporation, in a transaction that qualified as a “qualified
stock purchase” as defined in section 338(d)(3). Parent has also represented that FSub
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 intended to file the Election, but for various reasons, a valid Election was not
timely 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 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
Parent requested relief, and for which the new position requires or permits a regulatory
election for which relief is requested. Parent also has represented that it would have
made a section 338(g) election regarding the acquisition of Target as of the election due
date regardless of the enactment of the Tax Cuts and Jobs Act (TCJA) and the
issuance of regulations relating to the TCJA.

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.”

Pursuant to §1.338-2(e)(3), the statement of section 338 election may be filed by the
United States shareholders of a foreign purchasing corporation that is a controlled
foreign corporation, if certain requirements are met.

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 (the “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).
PLR-117759-20 3

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 Parent 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, Company Official, and
Tax Professional explain the circumstances that resulted in the failure to timely file a
valid Election. The information establishes that Parent reasonably relied on a qualified
tax professional who failed to make, or advise Parent to make, the Election, and 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) and (v).

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 75 days from the date on this letter, for Parent to file the Election with
respect to the acquisition of the stock of Target.

WITHIN 75 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). Note, however, that the
relief granted by this ruling letter is limited to the above extension of time to file the
Election; no opinion is expressed with respect to any other relief or permission (e.g.,
permission to change a method of accounting) that any relevant parties would otherwise
be required to receive or obtain from the Internal Revenue Service in order to report the
transaction consistently with the making of the Election had the Election been timely
made. 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 (PLR-117759-20) of, this 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).
PLR-117759-20 4

The above extension of time is conditioned on the taxpayers’ (Parent’s consolidated
group’s, FSub’s, 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.

We express no opinion as to: (1) whether FSub acquired the Target stock in a
transaction that 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, 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 Election, penalties and interest that would otherwise be
applicable, if any, continue to apply.

This letter 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.

Pursuant to the Power of Attorney on file with this office, a copy of this letter is 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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