PLR 202552013: Extension Granted for Late Section 336(e) Election

S Corp Target Salvages Asset Sale Treatment

The IRS has granted an S Corporation target and its shareholders a 75-day extension to file a Section 336(e) election. This election allows a stock sale to be treated as an asset sale for tax purposes. The relief prevents the loss of intended tax benefits due to a missed filing deadline.

The Missed Filing: Facts of the Transaction

The situation arose when Purchasers acquired all of the stock of S Corporation Target from its Shareholders in what qualified as a "qualified stock disposition" under Section 1.336-1(b)(6) of the regulations. A "qualified stock disposition" refers to a transaction where a sufficient amount of a corporation's stock is sold to meet the requirements of Section 1504(a)(2)—meaning at least 80% of the total voting power and 80% of the total value of the corporation's stock. Despite intending to treat the stock sale as an asset sale under Section 336(e) and its related regulations, the parties failed to file the required election statement with the IRS on time. Crucially, the taxpayers discovered their error before the IRS identified the missed filing.

Relief Granted with Strict Conditions

The IRS granted the S Corporation Target an extension to make the election under Reg. §301.9100-3, which governs extensions for regulatory elections, because the parties acted reasonably and in good faith and granting relief would not prejudice the government. The IRS requires taxpayers to demonstrate they acted reasonably and in good faith when seeking relief under §301.9100-3. Here, the taxpayers discovered their error before the IRS identified it, supporting the claim of reasonable action.

The relief is subject to several critical conditions. First, the S Corporation Target must file the Election Statement in accordance with §1.336-2(h)(3)(iii) within 75 days of the date of the Private Letter Ruling. Second, all relevant parties must file or amend all necessary returns to report the transaction consistently with a Section 336(e) election within 150 days of the date of the ruling.

Crucially, the IRS stipulated that the aggregate tax liability for all relevant parties cannot be lower than it would have been if the election had been filed on time, considering the time value of money. This condition ensures that the government is not prejudiced by the delayed election. The IRS explicitly stated that its ruling offers no opinion on the taxpayers' actual tax liabilities, which will be determined upon audit.