EXTENSION GRANTED TO FILE ELECTION.

Index Numbers: 338.01-02, 9100.07-00

[1] This letter responds to a letter dated March 7, 2001, submitted on behalf of Purchaser and Sellers by their authorized representative, requesting an extension of time under sections 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations to file an election. Purchaser and Sellers are requesting an extension to file a "section 338(h)(10) election" under sections 338(g) and 338(h)(10) of the Internal Revenue Code and section 1.338(h)(10)-1(d) of the Income Tax Regulations with respect to Purchaser's acquisition of the stock of Target (sometimes hereinafter referred to as the "Election"), on Date A. (All citations in this letter to regulations under section 338 are to regulations in effect on Date A.) The material information is summarized below.

[2] Purchaser is the common parent of an affiliated group of corporations filing a consolidated Federal income tax return. Target is an "S" corporation. On Date A, Purchaser acquired all of the stock of Target from its shareholders, Sellers. It is represented that Purchaser's acquisition of the stock of Target qualified as a "qualified stock purchase," as defined in section 338(d)(3). As part of the acquisition and pursuant to the agreement signed on Date A, the parties authorized an election under section 338(h)(10) with respect to the transaction and all tax returns were timely filed as if the Election had been made.

[3] Purchaser and Sellers intended to file the Election. The Election was due on Date B, but for various reasons a valid Election was not filed. After the due date for the Election, it was discovered that the Election had not been filed. Subsequently, this request was submitted, under section 301.9100-1, for an extension of time to file the Election. The period of limitations on assessment under section 6501(a) has not expired for Purchaser's, Target's, or each Seller's taxable years in which the acquisition occurred, the taxable years in which the Election should have been filed, or any taxable years that would have been affected by the Election had it been timely filed.

[4] Section 338(a) permits certain stock purchases to be treated as asset acquisitions if: (1) the purchasing corporation makes or is treated as having made a "section 338 election" or a "section 338(h)(10) election"; and (2) the acquisition is a "qualified stock purchase."

[5] Section 338(h)(10) permits the purchasing and selling corporations to elect jointly to treat the target corporation as deemed to sell all of its assets and distribute the proceeds in complete liquidation. A section 338(h)(10) election may be made for target only if it is a member of a selling consolidated group, a member of a selling affiliated group filing separate returns, or an S corporation. Section 1.338(h)(10)-1(a).

[6] Under section 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.

[7] 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 section 301.9100- 3 will be granted when the taxpayer provides evidence to establish 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).

[8] In this case, the time for filing the Election is fixed by the regulations (i.e., section 1.338(h)(10)-1(d)). Therefore, the Commissioner has discretionary authority under section 301.9100-1 to grant an extension of time for Purchaser and Sellers to file the Election, provided Purchaser and Sellers show they acted reasonably and in good faith, the requirements of sections 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the government.

[9] Information, affidavits, and representations submitted by Purchaser, Sellers, Sellers' CPA and Company Official explain the circumstances that resulted in the failure to timely file a valid Election. The information establishes that the request for relief was initiated before the failure to make the Election was discovered by the Internal Revenue Service, that the taxpayers relied on a qualified tax professional and that the interests of the government will not be prejudiced if relief is granted. See sections 301.9100- 3(b)(1)(i) and (v).

[10] Based on the facts and information submitted, including the representations made, we conclude that Purchaser and Sellers have shown they acted reasonably and in good faith, the requirements of sections 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 section 301.9100-1, until 30 days from the date of issuance of this letter, for Purchaser and Sellers to file the Election with respect to the acquisition of the stock of Target, as described above.

[11] The above extension of time is conditioned on (1) the filing, within 120 days of the issuance of this letter, of all returns and amended returns (if any) necessary to report the transaction in accordance with the Election, and (2) the taxpayers' (Purchaser's consolidated group's, each Seller's, and Target's) tax liability (if any) being not lower, in the aggregate, for all years to which the Election applies, than it would have been if the Election had been timely made (taking into account the time value of money). No opinion is expressed as to the taxpayers' tax liability 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. Further, no opinion is expressed as to the Federal income tax effect, if any, if it is determined that the taxpayers' tax liability is lower. Section 301.9100-3(c).

[12] Purchaser and Sellers must file the Election in accordance with section 1.338(h)(10)-1(d). That is, a new election on Form 8023 must be executed on or after the date of this letter, which grants an extension, and filed in accordance with the instructions to the form. A copy of this letter must be attached to the election form. Purchaser and Sellers, having filed their returns reporting the transaction as a section 338(h)(10) transaction for the taxable year in which the transaction was consummated, must amend their returns by attaching to the returns a copy of this letter and a copy of the Election.

[13] We express no opinion as to: (1) whether the "acquisition/sale" of the Target stock qualifies as a "qualified stock purchase" under section 338(d)(3); (2) whether the "acquisition/sale" of Target stock qualifies for section 338(h)(10) treatment; or (3) any other tax consequences arising from the Election.

[14] In addition, we express no opinion as to the tax consequences of filing the 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 Election late that are not specifically set forth in the above ruling. For purposes of granting relief under section 301.9100-1, we relied on certain statements and representations made by the taxpayers. However, the Director should verify all essential facts. In addition, notwithstanding that an extension is granted under section 301.9100-1 to file the Election, penalties and interest that would otherwise be applicable, if any, continue to apply.

[15] Purchaser must provide Sellers with a copy of this letter.

[16] This letter is directed only to the taxpayer(s) who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.

                                   Sincerely yours,