Parties received extra time to file a section 336(e) election statement

Plain-English summary

Shareholders sold all of an S corporation's stock to a purchaser through a disregarded entity, and the parties intended to elect under section 336(e) to treat the qualified stock disposition as an asset disposition. They entered the transaction with that intent but failed to file the required election statement on time because they relied on a qualified tax professional who did not timely file it or advise them to do so. The IRS found that the parties acted reasonably and in good faith, requested relief before the IRS discovered the failure, and 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 the parties' aggregate tax liabilities not being lower than they would have been with a timely election, and the IRS did not rule that the transaction was in fact a qualified stock disposition.

Ruling snapshot

• Question: Could the parties receive extra time to file the election statement for a section 336(e) stock-sale election?
• Outcome: approved
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2(h)(3), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 202402006                                            Third Party Communication: None
Release Date: 1/12/2024                                      Date of Communication: Not Applicable
Index Number: 336.00-00, 336.05-00,
              9100.00-00, 9100.22-00                         Person To Contact:
                                                             --------------------------, ID No. ----------------
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-----------------------------------------------------        Telephone Number:
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------------------------------------                         Refer Reply To:
                                                             CC:CORP:1
                                                             PLR-110394-23
                                                             Date:
                                                             October 11, 2023




Legend

S Corporation        = ---------------------------------------------------------------------------------------
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LLC                  = ---------------------------------------------------------------------------------------
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Shareholders         = ---------------------------------------------------------------------------------------
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Purchaser            = ---------------------------------------------------------------------------------------
                       ------------------------

DE                   = ---------------------------------------------------------------------------------------
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Jurisdiction A       = --------------------------

Jurisdiction B       = -------------

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

Date 2               = --------------------------

PLR-110394-23                                             2

 Company                = --------------------
 Official
 Tax                    = ---------------------------------------------------------------------------------------
 Professionals            ---------------------------------------------------------------------------------------
                          ---------------------------------------------------------------------------------------
                          ---------------------------------------------------------------------------------------
                          ---------------------------

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

This letter responds to a letter dated May 12, 2023, submitted on behalf of LLC (as
successor of S Corporation), Shareholders, and Purchaser (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) (“Election Statement”) with
respect to Purchaser’s acquisition, through a disregarded entity, of all the stock of S
Corporation from Shareholders on Date 1. The material information submitted is
summarized below.

S Corporation was a Jurisdiction A corporation that elected to be treated as an S
corporation for federal income tax purposes. Purchaser is a limited liability company
that is classified as a partnership for federal income tax purposes. On Date 1, the
shareholders of the S Corporation sold for cash all the stock of S Corporation to
Purchaser through a disregarded entity, Purchaser’s DE, for federal income tax
purposes (the “Disposition”). It has been represented that the Disposition qualified as a
“qualified stock disposition” as defined in § 1.336-1(b)(6). On Date 2, S Corporation
converted to a limited liability company (“LLC”) under the laws of Jurisdiction B. LLC is
characterized as a disregarded entity for federal income tax purposes.

The Parties represented that they intended to make a 336(e) election for the
Disposition. However, for various reasons, the Election Statement was not timely filed.
Subsequently, the Parties submitted a request for an extension of time to file a valid
election. 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

PLR-110394-23                                 3

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 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 will not prejudice the interests of the government.

Information, affidavits, and representations submitted by the Parties, Company Official,
and Tax Professionals 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 to advise them to timely file,
the Election Statement, and 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, 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 tax return for the taxable year including Date 1. Alternatively, if S

PLR-110394-23                                  4

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 and control number (PLR-110394-23) 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 such liabilities 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, 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 Professionals. 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 ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

PLR-110394-23                                            5

Pursuant to the Power of Attorney on file with this office, copies of this letter are being
sent to your authorized representatives.


                                                Sincerely,


                                                Jonathan M. Kushner
                                                Jonathan M. Kushner
                                                Senior Technician Reviewer, Branch 3
                                                Office of Associate Chief Counsel (Corporate)


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