Parties received more time to complete a section 336(e) election

Plain-English summary

A purchaser acquired all stock of an S corporation, after which the target converted to a disregarded limited liability company. The parties intended to elect under section 336(e) to treat the qualified stock disposition as an asset disposition, but their tax professional failed to ensure that the required election statement was timely filed. The IRS found that the parties acted reasonably and in good faith and that relief would not prejudice the government. It granted 75 days to file the election statement and 150 days for all relevant parties to file or amend returns consistently with the election. The relief was conditioned on aggregate tax liabilities not being lower than they would have been with a timely filing.

Ruling snapshot

• Question: Could the parties receive extra time to file the election statement required for an S corporation target's section 336(e) election?
• Outcome: Approved
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2, and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202302010 Third Party Communication: None
Release Date: 1/13/2023 Date of Communication: Not Applicable
Index Numbers: 9100.22-00, 336.05-00
Person To Contact:
--------------------------------------- ------------------, ID No. -----------------
------------------------------------------ Telephone Number:
--------------------------------------------- --------------------
----------------------------------------- Refer Reply To:
CC:CORP:B01
PLR-112742-22
Date:
October 13, 2022

Legend

LLC = ------------------------------------------
------------------------

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

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

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

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

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

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

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

This letter responds to a letter dated June 21, 2022, submitted on behalf of LLC (as
successor to 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 file the election statement under §1.336-2(h)(3)(iii) of the Income Tax
Regulations (the "Election Statement") with respect to Purchaser's acquisition of all the
PLR-112742-22 2

stock of S Corporation Target from Shareholder on Date 1. The material information
submitted is summarized below.

On Date 1, Purchaser, a limited liability company treated as a partnership for federal tax
purposes, acquired all the stock of S Corporation Target, a corporation that elected to
be treated as an S corporation for federal tax purposes, 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). Subsequently, S Corporation
Target converted to a limited liability company ("LLC"). LLC is a disregarded entity for
federal tax purposes, whose sole owner, for federal tax purposes, is Purchaser.

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).
PLR-112742-22 3

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.

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 advise them to timely file, the
Election Statement and 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) 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, LLC, as successor of 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's return is filed
electronically, the requirement of attaching a copy of this letter to the return may be
satisfied by attaching a statement to its return that provides the date on, and control
number (PLR-112742-22) 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
PLR-112742-22 4

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, 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 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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