Late section 336(e) election statement relief granted

Plain-English summary

A purchaser acquired all the stock of an S corporation, and the parties intended to elect under section 336(e) to treat the stock disposition as an asset disposition. They did not timely attach the required election statement to the S corporation's return. The IRS found that the parties acted reasonably and in good faith, requested relief before the IRS discovered the failure, and satisfied the regulatory standards. 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 if the statement had been timely filed.

Ruling snapshot

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

Full text (IRS public release)

 Internal Revenue Service                                         Department of the Treasury
                                                                  Washington, DC 20224

 Number: 202403007                                                Third Party Communication: None
 Release Date: 1/19/2024                                          Date of Communication: Not Applicable
 Index Number: 336.05-00, 9100.22-00
                                                                  Person To Contact:
 ------------------------------------                             -----------------, ID No. -----------------
 ---------------------------------                                Telephone Number:
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                                                                  Refer Reply To:
                                                                  CC:CORP:B03
                                                                  PLR-109981-23
                                                                  Date:
                                                                  October 19, 2023




Legend

S Corporation Target                =         -------------------------------------
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Purchaser                           =         -------------------------
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Shareholder                         =         -------------------------
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Date 1                              =        ------------------



Dear         :

This letter responds to a letter dated May 8, 2023 as supplemented by additional
information request response dated September 8, 2023, submitted on behalf of 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 an
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 stock of S Corporation
Target from Shareholder on Date 1. The material information submitted is summarized
below.

PLR-109981-23                                 2

On Date 1, Purchaser 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 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-109981-23                                  3

Information, affidavits, and representations submitted by the Parties 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)(3)(iii). The Election Statement must
be attached to S Corporation Target's tax return for the taxable year including Date 1.
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-109981-23) 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 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) 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. 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.

PLR-109981-23                                        4

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,


                                               Gregory J. Galvin
                                               Gregory J. Galvin
                                               Senior Technician Reviewer, Branch 1
                                               Associate Chief Counsel (Corporate)


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