Extra time to file a late section 336(e) election so an S corporation stock sale can be treated as an asset sale

Plain-English summary

A section 336(e) election lets certain stock sales be treated, for tax purposes, as if the company sold its assets instead, which can give the buyer a stepped-up basis in the underlying assets. Here a partnership bought all of the stock of an S corporation from its shareholders in a "qualified stock disposition," and everyone intended to make a 336(e) election, but for various reasons the required election statement was not filed on time. The parties asked the IRS for an extension under Treasury Regulation section 301.9100-3. Because the deadline for the election statement is set by regulation, the IRS has discretion to grant more time when the taxpayers acted reasonably and in good faith and relief will not prejudice the government, and it found the request was filed before the IRS discovered the failure. The IRS granted 75 days to file the election statement (and 150 days for all parties to file consistent returns). The relief is conditioned on the parties' total tax not being lower than if the election had been timely, and the IRS did not rule on whether the sale actually qualifies.

Ruling snapshot

• Question: Should the parties to an S corporation stock sale get more time under section 301.9100-3 to file a late section 336(e) election statement treating the sale as an asset disposition?
• Outcome: Approved (75 days to file the election statement; 150 days for consistent returns; contingent on no aggregate tax reduction).
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2; Treas. Reg. §§ 301.9100-1, 301.9100-3.

Full text (IRS public release)

 Internal Revenue Service                                     Department of the Treasury
                                                              Washington, DC 20224

 Number: 202208008                                            Third Party Communication: None
 Release Date: 2/25/2022                                      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:2
                                                              PLR-113963-21
                                                              Date:
                                                              December 01, 2021



Legend

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

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

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

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


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

This letter responds to a letter dated June 25, 2021, submitted on behalf of S
Corporation, Purchaser, and Shareholders (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
PLR-113963-21                                  2

Purchaser’s acquisition of all of the stock of S Corporation from Shareholders on Date

1. The material information submitted is summarized below.

On Date 1, Purchaser (an entity treated as a partnership for federal income tax
purposes) acquired all of the stock of S Corporation 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).

The Parties intended to make a section 336(e) election for the Disposition 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 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-113963-21                                  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 would not prejudice the interests of the government.

Information, affidavits, and representations submitted by the Parties and Company
Official explain the circumstances that resulted in the failure to timely file the Election
Statement. The information establishes that 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).

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 must file the
Election Statement in accordance with §1.336-2(h)(3)(iii). The Election Statement must
be attached to S Corporation’s tax return for the taxable year including Date 1. In
addition, a copy of this letter must be attached to S Corporation’s return. Alternatively, if
S Corporation 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-113963-21) 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
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 and Company
PLR-113963-21                                  4

Official. 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 letter 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 representative.

                                       Sincerely,

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




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