S corporation parties receive extra time to file a Section 336(e) election statement

Plain-English summary

A purchaser acquired all the stock of an S corporation from its shareholders in a transaction represented to be a qualified stock disposition. The parties intended to make a Section 336(e) election so the stock disposition would be treated as an asset disposition, but the required election statement was not filed on time. They had relied on a qualified tax professional and requested relief before the IRS discovered the failure. The IRS found that they acted reasonably and in good faith and granted 75 days to attach the election statement to the target's return. All relevant parties received 150 days to file or amend returns consistently with the election.

Ruling snapshot

• Question: Could the S corporation target, purchaser, and shareholders receive extra time to file the Section 336(e) election statement?
• Outcome: Approved, with 75 days for the statement and 150 days for affected returns.
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2(h), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202132008 Third Party Communication: None
Release Date: 8/13/2021 Date of Communication: Not Applicable
Index Number: 9100.22-00
Person To Contact:
-------------------------------- -------------------, ID No. -----------------
--------------------------------------- Telephone Number:
---------------------- --------------------
-------------------------------- Refer Reply To:
CC:CORP:B05
PLR-128393-20
Date:
May 20, 2021

Legend

Successor = ---------------------------------------
-----------------------

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

Shareholders = --------------------------

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

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

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

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

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

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

This letter responds to a letter dated December 7, 2020, submitted on behalf of
Successor (as successor of S Corporation Target), Purchaser, and Shareholders
PLR-128393-20 2

(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 the election statement under §1.336-2(h)(3)(iii) (“the Election
Statement”) with respect to Purchaser’s acquisition of all the stock of S Corporation
Target from Shareholders on Date 1. The material information submitted is summarized
below.

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

The Parties intended that a section 336(e) election would be made with respect to the
Disposition. However, for various reasons, a timely election was not made.
Subsequently, a request was submitted under §301.9100-3 for an extension of time to
file the Election Statement. The Parties 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 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 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
PLR-128393-20 3

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 §§301.9100-1 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 75 days from the date on this letter, to file the Election Statement.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, Successor, as successor of 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. In addition, a copy of this letter must be
attached to S Corporation Target’s return. 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-128393-20) of, this letter ruling.

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 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).

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, filing the section 336(e) 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
PLR-128393-20 4

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
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.

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)

cc: