IRS grants 75 more days to file a late Section 336(e) election statement after a tax pro missed the deadline

Plain-English summary

A partnership bought all the stock of an S corporation in a deal the parties treated as a qualified stock disposition. They intended to make a section 336(e) election, which lets a qualifying stock sale be treated as a sale of the target's assets for tax purposes. The required election statement was never filed on time because the parties' tax professional failed to file it. They asked for relief under Treasury Regulation section 301.9100-3, which allows the IRS to extend the deadline for certain elections when the taxpayer acted reasonably and in good faith and granting relief will not prejudice the government. The IRS found those standards met, noting the parties relied on a qualified professional and asked for relief before the IRS discovered the lapse, and granted 75 days from the letter to file the election statement (with related returns to be conformed within 150 days). The IRS expressed no opinion on whether the deal actually qualified as a qualified stock disposition. It matters because it shows the IRS will routinely rescue a missed 336(e) election through 9100 relief when a preparer, not the taxpayer, dropped the ball.

Ruling snapshot

• Question: Will the IRS extend the deadline to file a late section 336(e) election statement for a qualified stock disposition?
• Outcome: Approved (75 days from the letter to file; related returns conformed within 150 days)
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2(h)(3); Treas. Reg. §§ 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202147010 Third Party Communication: None
Release Date: 11/26/2021 Date of Communication: Not Applicable
Index Number: 9100.22-00, 336.05-00
Person To Contact:
---------------------------------- ------------------------, ID No. -----------------
-------------------------------------------------- Telephone Number:
------------------------------- ---------------------
--------------------------- Refer Reply To:
CC:CORP:3
PLR-110050-21
Date:
September 10, 2021

Legend

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

Shareholder = --------------------------

Purchaser = ----------------------------------------------------------------------------
----------------------------

DRE1 = ---------------------------------------------

DRE2 = -----------------------------------------------------------

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

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

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

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

This letter responds to a letter dated April 16, 2021, submitted on behalf of S
Corporation Target, Shareholder, and Purchaser (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 Shareholder on
Date 1. The material information submitted is summarized below.
PLR-110050-21 2

As of Date 1, Purchaser (a partnership for federal income tax purposes) owned DRE1
(a disregarded entity for federal income tax purposes), and DRE1 owned DRE2 (a
disregarded entity for federal income tax purposes). On Date 1, DRE2 acquired all the
stock of S Corporation Target from Shareholder (the “Disposition”). It has been
represented that the Disposition qualified as a “qualified stock disposition” as defined in
§1.336-1(b)(6).

The Parties intended to make a section 336(e) election for the Disposition but, for
various reasons, the tax return and Election Statement were not timely filed.
Subsequently, this 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.

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: (1) 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; (2) the S
corporation target retaining a copy of the written agreement; and (3) 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 (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).

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-
PLR-110050-21 3

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 timely 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, 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-110050-21) 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).

The above extension of time is conditioned on all relevant taxpayers’ 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.
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, making the section 336(e) election late that are not specifically set
PLR-110050-21 4

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
Election Statement, penalties and interest that would otherwise be applicable, if any,
continue to apply.

This ruling is directed only to the taxpayers 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 representatives.

                                   Sincerely,

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

cc: