Buyer and seller received 75 days to make a late Section 338(h)(10) election

Plain-English summary

A corporate purchaser acquired all the stock of an S corporation, and the purchaser and seller intended to make a joint Section 338(h)(10) election. That election would treat the target as selling its assets and liquidating even though the transaction was legally a stock sale. The parties filed their returns consistently with the intended election but later discovered that a valid election had not been filed. The IRS found that they acted reasonably and in good faith and that relief would not prejudice the government. It granted 75 days to file Form 8023 and required return amendments or statements within 150 days, subject to an aggregate tax-liability condition.

Ruling snapshot

• Question: Could the purchaser and seller make a late Section 338(h)(10) election for the acquisition of an S corporation?
• Outcome: Approved, with filing and tax-liability conditions
• Key authorities: IRC § 338; Treas. Reg. § 1.338(h)(10)-1; Treas. Reg. § 301.9100-1 through -3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202135003 Third Party Communication: None
Release Date: 9/3/2021 Date of Communication: Not Applicable
Index Number: 9100.07-00, 9100.22-00
Person To Contact:
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------------------------------------ Refer Reply To:
CC:CORP:B05
PLR-100618-21
Date:
June 10, 2021

Legend

Purchaser = -----------------------------------
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Seller = ------------------

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

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

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

State B = ----------

Company Officials = -----------------------------------
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Tax Professional = ----------------------------
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Dear --------------------:
PLR-100618-21 2

This letter responds to a letter dated January 4, 2021, submitted on behalf of Purchaser
and Seller, requesting an extension of time under §301.9100-3 of the Procedure and
Administration Regulations to file an election. Purchaser and Seller are requesting an
extension to file a “section 338(h)(10) election” under section 338(h)(10) of the Internal
Revenue Code and §1.338(h)(10)-1(c) of the Income Tax Regulations with respect to
Purchaser's acquisition of the stock of Target (sometimes hereinafter referred to as the
“Election”) on Date 1. The material information is summarized below.

Purchaser is a State A corporation. Target is a State B corporation which on Date 1
was an S corporation whose outstanding stock was owned by Seller. On Date 1,
Purchaser acquired all the stock of Target. The taxpayers have represented that
Purchaser's acquisition of the stock of Target qualified as a “qualified stock purchase”
as defined in section 338(d)(3). The taxpayers also have represented that all relevant
returns have been filed consistent with making the Election. Additionally, the taxpayers
have represented that they do not seek to alter a return position for which an accuracy-
related tax penalty has been or could be imposed under section 6662.

After the due date for the Election, it was discovered that a valid election had not been
filed. Subsequently, this request was submitted, under §301.9100-3, for an extension of
time to file the Election.

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.”

Section 1.338(h)(10)-1(c)(1) permits the purchasing corporation and sellers of an S
corporation to elect jointly to treat the target corporation as deemed to sell all of its
assets and distribute the proceeds in complete liquidation. A section 338(h)(10)
election may be made for target only if purchaser acquires stock meeting the
requirements of section 1504(a)(2) from a selling consolidated group, a selling affiliate,
or the S corporation shareholders in 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).
PLR-100618-21 3

In this case, the time for filing the Election is fixed by the regulations (i.e., §1.338(h)(10)-
1(c)(3)). Therefore, the Commissioner has discretionary authority under §301.9100-3 to
grant an extension of time for Purchaser and Seller to file the Election, provided
Purchaser and Seller show they 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 Purchaser, Seller, Company
Officials, and Tax Professional 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 Purchaser and Seller have shown they 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
Purchaser and Seller to file the Election with respect to the acquisition of the stock of
Target, as described above.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, Purchaser and Seller must file the
Election on Form 8023 in accordance with §1.338(h)(10)-1(c) 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, Purchaser and Seller, having
filed their returns as though a valid Election was made, must amend their returns to
attach to the returns a copy of this letter. Alternatively, Purchaser and Seller may
satisfy the requirement of attaching a copy of this letter by attaching a statement to their
returns that provides the date on, and control number (PLR-100618-21) of, the letter
ruling.

The above extension of time is conditioned on the relevant 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.

We express no opinion as to: (1) whether the “acquisition/sale” of the Target stock
qualifies as a “qualified stock purchase” under section 338(d)(3); (2) whether the
“acquisition/sale” of Target stock qualifies for section 338(h)(10) treatment; or (3) any
other tax consequences arising from the Election.
PLR-100618-21 4

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
Purchaser, Seller, Company Officials, 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(s) who requested it. Section 6110(k)(3)
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 representatives.

                                               Sincerely,


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

Cc: ---------------
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