IRS grants extension of time to make a Section 336(e) election for an S corporation stock sale

Plain-English summary

A purchaser bought all the stock of an S corporation from its shareholder in a deal the parties intended to treat, for tax purposes, as a sale of the company's assets rather than its stock. That treatment requires a section 336(e) election, which is made by a binding written agreement among the shareholders and the target plus an election statement attached to a timely filed return. The parties meant to make the election but did not complete it on time, because they relied on a tax professional who failed to make it or advise them to. They asked for relief under the section 9100 regulations, which let the IRS grant extra time for a missed regulatory election when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. Finding those conditions met (and that the request came before the IRS discovered the lapse), the IRS granted an extension: within 75 days the parties must sign the agreement and file the election statement, and within 150 days conform all affected returns, subject to conditions ensuring the government's tax revenue is not reduced.

Ruling snapshot

• Question: Should the parties receive an extension of time under section 301.9100-3 to make a section 336(e) election they failed to complete on time?
• Outcome: Approved (extension granted: 75 days to enter the agreement and file the election statement, 150 days to conform returns)
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1(b)(6), 1.336-2(h); 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: 202149008 Third Party Communication: None
Release Date: 12/10/2021 Date of Communication: Not Applicable
Index Number: 9100.22-00, 9100.00-00,
336.05-00 Person To Contact:
-------------------------------, ID No. -----------
------------------------------ Telephone Number:
----------------------------------------- ---------------------
---------------------- Refer Reply To:
------------------------------------ CC:CORP:B05
PLR-109666-21
Date:
September 10, 2021

Legend

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

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

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

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

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

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

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

This letter responds to a letter dated April 2, 2021, submitted on behalf of S Corporation
Target, Purchaser, and Shareholder (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 properly execute the
agreement referenced in §1.336-2(h)(3)(i) of the Income Tax Regulations (the
"Agreement") and 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-109666-21 2

On Date 1, Purchaser 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 for the stock sale to be treated as an asset sale, but for various
reasons, a timely election was not fully made. Subsequently, this request was
submitted, under §301.9100-3, for an extension of time to enter into the Agreement and
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
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 entering into the Agreement and filing the Election Statement is fixed by the
regulations (i.e., §1.336-2(h)(3)(i) and (iii)). Therefore, the Commissioner has
discretionary authority under §301.9100-3 to grant an extension of time to enter into the
Agreement and to file the Election Statement, provided the Parties acted reasonably
PLR-109666-21 3

and in good faith, the requirements of §§301.9100-1 and 301.9100-3 are satisfied, and
granting relief would 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
enter into the Agreement and file the Election Statement. The information establishes
that the Parties reasonably relied on a qualified tax professional who failed to timely
make, or advise the Parties to timely make, the section 336(e) election, and that the
request for relief was filed before the failure to timely make the section 336(e) 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 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 enter into the Agreement and
file the Election Statement.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, (1) S Corporation Target and
Shareholder must enter into a written, binding agreement in accordance with §1.336-
2(h)(3)(i) to make the section 336(e) election, and (2) 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-109666-21) 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 the 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 Agreement had been timely entered into and 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
PLR-109666-21 4

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
Professional. However, the Director should verify all essential facts. In addition,
notwithstanding that an extension is granted under §301.9100-3 to file the section
336(e) 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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