Extension Granted to File Stock Basis Election

Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact: * * *, ID No. * * *
Telephone Number: * * *

Index Numbers: 362.01-00, 9100.22-00
Release Date: 8/10/2018

Date: May 15, 2018

Refer Reply To: CC:CORP:B04 - PLR-135595-17

In Re: * * *

LEGEND:

Taxpayer = * * *
Sub 1 = * * *
F Corp = * * *
DRE 1 = * * *
DRE 2 = * * *
DRE 3 = * * *
DRE 4 = * * *
CFC 1 = * * *
CFC 2 = * * *
Date 1 = * * *
Date 2 = * * *
x = * * *
Company Official = * * *
Tax Professional = * * *

Dear * * *:

This letter responds to a letter dated November 28, 2017, submitted by your authorized representative, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to file an election. The extension is being requested in order to allow Taxpayer, as common parent of the consolidated group including the controlling U.S. shareholder of CFC 1, to file the election statement described in § 1.362-4(d)(3) ("Section 362(e)(2)(C) Statement") with respect to CFC 1's transfer of certain stock to CFC 2 as described in Transfer 2 below. Additional information was submitted in subsequent letters. The material information is summarized below.

Taxpayer is a corporation that is the common parent of a consolidated group. Immediately prior to Date 1, Taxpayer indirectly owned, through members of its consolidated group, all of the stock of Sub 1, and Sub 1 directly owned x% of the stock of F Corp and, through DRE 1, DRE 2, and DRE 3 (each of which was an entity disregarded as separate from Sub 1 for federal income tax purposes), all of the stock of CFC 1. In addition, CFC 1 owned, through DRE 4 (an entity that was disregarded as separate from CFC 1 for federal income tax purposes), all of the stock of CFC 2. Each of CFC 1 and CFC 2 was a controlled foreign corporation within the meaning of § 957(a).

On Date 1, Sub 1 transferred its x% of F Corp stock, through DRE 1, DRE 2, and DRE 3, to CFC 1 (“Transfer 1”), and CFC 1 immediately transferred the x% of F Corp stock, through DRE 4, to CFC 2 (“Transfer 2”). Each of Transfer 1 and Transfer 2 was represented by Taxpayer as qualifying as a tax-free transaction to which § 351 applies. At the time of Transfer 1 and Transfer 2, the F Corp stock had a tax basis exceeding fair market value.

Section 362(e)(2)(A) generally provides that if property is transferred to a corporation as a capital contribution or in an exchange to which § 351 applies and the aggregate adjusted basis of the transferred property would, but for that provision, exceed the fair market value of such property immediately after the transaction, then the transferee corporation's basis in such property shall not exceed the fair market value of such property.

Under § 362(e)(2)(C), however, the transferor and transferee may make a joint election to reduce the transferor's basis in the stock received to its fair market value, and no reduction of the transferee's basis in the property received will be required. Section 362(e)(2)(C) provides that such election shall be made at such time and in such form and manner as the Secretary may prescribe and, once made, shall be irrevocable. Section 362(e)(2)(A) does not apply, and the election under § 362(e)(2)(C), is not available, to exchanges subject to § 362(e)(1).

Generally, for transactions after September 3, 2013, rules for making elections under § 362(e)(2)(C) are in § 1.362-4(d)(3). Date 1 is a date after September 3, 2013.

In order to make the election under § 362(e)(2)(C), § 1.362-4(d)(1)(i) requires that prior to the filing of the Section 362(e)(2)(C) Statement, the transferor and the acquiring corporation enter into a written, binding agreement to elect to apply § 362(e)(2)(C), and § 1.362-4(d)(1)(ii) requires that the Section 362(e)(2)(C) Statement be filed in accordance with the provisions of § 1.362-4(d)(3).

Section 1.362-4(d)(3)(ii)(A) provides that if the transferor is required to file a United States federal income tax return, the Section 362(e)(2)(C) Statement is filed by the transferor.

The Section 362(e)(2)(C) Statement was required to be filed on or with Taxpayer's timely filed income tax return for the year ending Date 2. For various reasons, however, Taxpayer failed to file the Section 362(e)(2)(C) Statement in a timely manner. Taxpayer has represented that it does not seek to alter a return position for which an accuracy-related penalty has been or could be imposed under § 6662 at the time Taxpayer requested relief, and the new position requires or permits the election for which relief is requested.

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.

Section 301.9100-1(b) defines the term "regulatory election" as an election whose due date is prescribed by a regulation, revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin. 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. Section 301.9100-3 provides extensions of time for making regulatory elections that do not meet the requirements of § 301.9100-2. 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 Section 362(e)(2)(C) Statement is fixed by § 1.362-4(d)(3)(ii). Therefore, the Commissioner has discretionary authority under § 301.9100-3 to grant an extension of time for Taxpayer to file the Section 362(e)(2)(C) Statement, provided 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 government.

Information, affidavits, and representations submitted by Taxpayer, Company Official, and Tax Professional explain the circumstances surrounding the failure to timely file the Section 362(e)(2)(C) Statement. The information establishes that the request for relief was filed before the failure to timely file the Section 362(e)(2)(C) Statement was discovered by the Internal Revenue Service. See § 301.9100-3(b)(1)(i).

Based on the facts and information submitted, including the affidavits submitted and the representations made, we conclude that 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. Accordingly, an extension of time is granted under § 301.9100-3, until 60 days from the date on this letter, for Taxpayer to file the Section 362(e)(2)(C) Statement regarding Transfer 2, in the manner described in § 1.362-4(d)(3).

This extension of time is conditioned on the federal tax liability (if any) of any relevant party not being lower, in the aggregate, for all years to which the § 362(e)(2)(C) election applies than it would have been if the Section 362(e)(2)(C) Statement had been timely filed (taking into account the time value of money). No opinion is expressed as to the tax liability for the years involved. A determination thereof will be made by the Director's office upon audit of the federal income tax returns involved.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction discussed in this letter. Specifically, no opinion is expressed concerning the basis or fair market value of any asset, whether Transfer 1 or Transfer 2 are described in § 351, or whether Taxpayer is substantively entitled to make a § 362(e)(2)(C) election. In addition, no opinion is expressed as to the tax effects or consequences of filing the Section 362(e)(2)(C) Statement late under the provisions of any other section of the Code or regulations, or as to the tax treatment of any conditions existing at the time of, or effects resulting from, filing the Section 362(e)(2)(C) Statement 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 that Taxpayer, Company Official, and Tax Professional made under penalties of perjury. However, the Director should verify all essential facts. Moreover, notwithstanding that an extension is granted under § 301.9100-3 to file the Section 362(e)(2)(C) Statement, any penalties and interest that would otherwise be applicable still apply.

The letter 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.

A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to the return that provides the date and control number of this letter ruling.

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

Sincerely,

Ken Cohen
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel (Corporate)