IRS grants an extension of time to file a late section 336(e) election for an S corporation stock sale

Plain-English summary

A buyer acquired all the stock of an S corporation from its seller. The parties wanted to treat that stock sale as if it were a sale of the S corporation's underlying assets, which they could do by making a section 336(e) election. That election lets the transaction be reported as an asset disposition (often giving the buyer a stepped-up cost basis in the target's assets). To make it, all the shareholders and the target must sign a written binding agreement and the target must attach an election statement to its timely filed return. The parties meant to make the election but did not fully and timely file the election statement. They asked the IRS for relief under the "9100" regulations (Treas. Reg. § 301.9100-3), which let the IRS grant more time for a missed election when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. The IRS found those standards met (the request came in before the IRS caught the failure) and granted a 75-day extension to file the election statement, plus 150 days for all parties to file or amend returns to match. The extension is conditioned on the parties' total tax not coming out lower than if they had filed on time. The IRS expressed no opinion on whether the sale actually qualified as a "qualified stock disposition."

Ruling snapshot

• Question: May the parties get an extension of time under § 301.9100-3 to file the election statement for a section 336(e) election on an already-completed S corporation stock sale?
• Outcome: approved
• Key authorities: IRC § 336(e); Treas. Reg. §§ 1.336-1, 1.336-2(h)(3); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 202439013
Release Date: 9/27/2024
Index Number: 9100.22-00, 336.05-00

Third Party Communication: None
Date of Communication: Not Applicable

Person To Contact:
----------------------, ID No. -----------------
Telephone Number:

Refer Reply To:
CC:CORP:5
PLR-125223-23

Date:
June 24, 2024

Legend

S Corporation = [redacted]

Purchaser = [redacted]

Seller = [redacted]

Company Official = [redacted]

Tax Professionals = [redacted]

State A = [redacted]

Date 1 = [redacted]

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

This letter responds to a letter dated December 21, 2023, submitted on behalf of
Purchaser, S Corporation, and Seller (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) ("Election Statement") with respect to Purchaser's
acquisition of all of the stock of S Corporation from Seller on Date 1. The material
information submitted is summarized below.

Immediately before Date 1, Seller directly owned all of the issued and outstanding stock
of S Corporation, a State A limited liability company that elected to be treated as an S
corporation for U.S. federal income tax purposes. On Date 1, Purchaser acquired all of
the stock of S Corporation from Seller (the "Disposition"). It has been represented that
the Disposition qualified as a "qualified stock disposition" as defined in § 1.336-1(b)(6).

The Parties intended that a section 336(e) election would be made with respect to the
Disposition. However, for various reasons, a timely election was not fully made.
Subsequently, a request was submitted under § 301.9100-3 of the Procedure and
Administration Regulations 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 at the time
of the request.

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 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 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, 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 Disposition.

WITHIN 75 DAYS OF THE DATE ON THIS LETTER, 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.
Alternatively, if S 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 on, and control number (PLR-125223-23) 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) not
being 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 Directors' 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 filing of 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 taxpayers requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

Pursuant to the Power of Attorney on file with this office, a copy of this letter is being
sent to your authorized representatives.

                                                Sincerely,



                                                ____________________________________
                                                Brian R. Loss
                                                Office of Associate Chief Counsel (Corporate)
                                                Senior Technician Reviewer, Branch 4

cc: [redacted]