Buyer of foreign-subsidiary targets gets 75 days to make late Section 338(g) elections its tax advisor failed to file

Plain-English summary

When one corporation buys the stock of another in a "qualified stock purchase," Section 338(g)
lets the buyer elect to treat the deal as if it had bought the target's assets instead of its stock,
which resets the tax basis of those assets. The election is especially common when the targets
are controlled foreign corporations (CFCs). Here, the common parent of a consolidated group
bought (through disregarded entities) the stock of several foreign targets and intended to make
Section 338(g) elections for each, but valid elections were never filed. The parent asked the IRS
for late relief under the Section 301.9100-3 regulations, representing that it reasonably relied on
a tax professional who failed to make or advise the elections and that it was not using the request
to change a return position exposed to penalties. The IRS found the parent acted reasonably and
in good faith and granted 75 days to file the elections on Form 8023, with 150 days to file or
amend all affected returns to report the deals as Section 338 transactions. The relief is
conditioned on the elections not lowering the taxpayers' aggregate tax, and the IRS expressly did
not rule on whether the purchases actually qualified as qualified stock purchases; penalties and
interest, if any, still apply.

Ruling snapshot

• Question: May the buyer in a stock acquisition get an extension of time to make late § 338(g) elections that its tax professional failed to file?
• Outcome: approved (75 days to file Form 8023; 150 days to file/amend returns; conditioned on no aggregate tax reduction)
• Key authorities: IRC § 338(a), (d)(3), (g); § 957(a); Treas. Reg. §§ 1.338-2, 301.9100-3(b)(1)

Full text (IRS public release)

 Internal Revenue Service                                       Department of the Treasury
                                                                Washington, DC 20224

 Number: 202309010                                              Third Party Communication: None
 Release Date: 3/3/2023                                         Date of Communication: Not Applicable
 Index Number: 338.00-00, 338.01-00,
               338.01-02, 9100.00-00,                           Person To Contact:
               9100.06-00                                       ----------------------------,
                                                                ID No. -----------------
 ----------------------------------------------                 Telephone Number:
 --------------------------                                     --------------------
 --------------------------------                               Refer Reply To:
 ----------------------------------                             CC:CORP:2
                                                                PLR-115569-22
                                                                Date:
                                                                December 06, 2022




Legend

Parent                    =        --------------------------
                                   ------------------------

ParentDE                  =        --------------------------

Seller                    =        ------------------------------

SellerDE                  =        -------------------------------

Target1                   =        -------------------------------------------------------

Target2                   =        ------------------------------------------------

Target2Subs               =        ---------------------------------------------------
                                   ----------------------------------------------------------------
                                   -------------------------------

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

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

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

                            --------------------------

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

This letter responds to a letter submitted August 15, 2022, on behalf of Parent, the
common parent of a consolidated group, requesting an extension of time under
§301.9100-3 of the Procedure and Administration Regulations to file elections. Parent
is requesting an extension of time to file "section 338 elections" under section 338(g)
with respect to the acquisition of Targets (as defined below) on Date 1 (the "Elections").
The material information submitted is summarized below.

Immediately prior to Date 1, Seller owned through SellerDE (a disregarded entity for
federal tax purposes) all the stock of Target1 and Target2, and Target2 owned all the
stock of Target2Subs (collectively, the "Targets"), each of which was a controlled
foreign corporation ("CFC") within the meaning of section 957(a). On Date 1, Parent
acquired, through ParentDE (a disregarded entity for federal tax purposes), the
ownership interests of SellerDE from Seller, and through SellerDE, the stock of Targets.
Parent has represented that the acquisition of Targets was a "qualified stock purchase"
within the meaning of section 338(d)(3).

Parent intended to make Elections for each of Targets but, for various reasons, valid
Elections were not made. Subsequently, this request was submitted, under §301.9100-
3, for an extension of time to file the Elections. Parent has represented that it is 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.

Section 338(a) permits certain stock purchases to be treated as asset acquisitions if: (1)
the purchasing corporation makes or is treated as having made a "section 338 election"
or a "section 338(h)(10) election"; and (2) the acquisition is a "qualified stock purchase."

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, 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 Parent, Company Official, and
Tax Professional explain the circumstances that resulted in the failure to timely file the
Elections. The information establishes that Parent reasonably relied on a qualified tax
professional who failed to make, or advise Parent to make, the Elections, and that the
request for relief was filed before the failure to make the Elections 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 Parent has shown it 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, for Parent to file the Elections
with respect to the acquisition of Targets, as described above.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, Parent must file the Elections on
Form 8023, in accordance with §§1.338-2(d) and (e)(3) and the instructions to the form.
A copy of this letter must be attached to Form 8023.

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
transactions as section 338 transactions for the taxable year in which the transactions
were consummated (and for any other affected taxable year). A copy of this letter and a
copy of Form 8883 must be attached to any tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy the requirements of
attaching a copy of this letter by attaching a statement to their return that provides the
date on, and control number (PLR-115569-22) of, the letter ruling.

Parent must also deliver written notice of the Elections (and a copy of Forms 8023 and
8883, their attachments and instructions) to any U.S. persons selling or holding stock in
Targets in accordance with §1.338-2(e)(4).

The above extension of time is conditioned on the relevant taxpayers' tax liability (if any)
being not lower, in the aggregate, for all years to which the Elections apply, than it
would have been if the Elections had been timely made (taking into account the time
value of money). No opinion is expressed as to the taxpayers' tax liability 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 any acquisition qualified as a "qualified stock
purchase" under section 338(d)(3); or (2) any other tax consequences arising from the
Elections.

In addition, we express no opinion as to the tax consequences of filing the Elections 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 Elections
late that are not specifically set forth in the above ruling. For purposes of granting relief
under §301.9100-3, we relied on certain statements and representations made by
Parent, Company Official, and Tax Professional. However, the Director should verify all
essential facts. In addition, notwithstanding than an extension is granted under
§301.9100-3 to file the Elections, penalties and interest that would otherwise be
applicable, if any, continue to apply.

This ruling 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.

In accordance with 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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