Late Section 336(e) election allowed for an S corporation stock sale

Plain-English summary

When buyers acquire all the stock of an S corporation, the parties can
elect under Section 336(e) to treat the stock sale as if it were an asset
sale, which can produce a better tax result (a stepped-up basis in the
company's assets for the buyers). Making that election requires a written
agreement among all shareholders and the target, plus an election
statement attached to a timely filed tax return. Here the parties
intended to make the election but did not complete it on time. They asked
the IRS for "9100" relief (Treas. Reg. § 301.9100-3), which lets the IRS
extend a missed election deadline when the taxpayer acted reasonably and
in good faith and the government is not harmed. Because the request came
in before the IRS discovered the failure, the IRS granted the extension:
the parties have 75 days to file the election statement and 150 days to
file or amend all affected returns consistently. The IRS did not decide
whether the sale actually qualifies as a "qualified stock disposition" or
any resulting tax consequences; it only reopened the filing window.

Ruling snapshot

• Question: May the parties get an extension of time to file a late Section 336(e) election statement for an S corporation stock disposition?
• Outcome: Approved (9100 relief granted; 75 days to file the election statement, 150 days to conform 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: 202246006                                     Third Party Communication: None
 Release Date: 11/18/2022                              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:3
                                                       PLR-105920-22
                                                       Date:
                                                       August 24, 2022



Legend

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

Purchasers                               =   -------------------------
                                             ----------------
                                             --------------------

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

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

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


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

This letter responds to a letter dated March 1, 2022, submitted on behalf of S
Corporation Target, Purchasers, 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 file
the election statement under §1.336-2(h)(3)(iii) of the Income Tax Regulations (the
"Election Statement") with respect to Purchasers' acquisition of all the stock of S
Corporation Target from Shareholder on Date 1. The material information submitted is
summarized below.
PLR-105920-22                                 2

On Date 1, Purchasers acquired all the stock of S Corporation Target from Shareholder
(the "Stock Disposition"). It has been represented that the Stock 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 Stock 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: (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 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 would not prejudice the interests of the government.
PLR-105920-22                                  3

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 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
with respect to the Stock Disposition.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, S Corporation Target must file the
Election Statement in accordance with §1.336-2(h)(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-105920-22) 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 Parties' 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 Stock 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) 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 Official.
However, the Director should verify all essential facts. In addition, notwithstanding that
PLR-105920-22                                    4

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 who requested it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

Pursuant to the Power of Attorney on file in 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)



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