Extension of Time for Making Certain Elections

Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 202150007
Release Date: 12/17/2021
Index Number: 263.00-00, 9100.00-00
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July 28, 2021
Person To Contact:
---, ID No. ---
Telephone Number:
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Refer Reply To:
CC:IT&A:B1
PLR-107578-20
Date:
Legend
Taxpayer: ---
Company: ---

X: ---
Holdings: ---
Dear ---:
This is in response to a letter sent on behalf of the Taxpayer dated Date 4 requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations for Taxpayer to make the safe harbor election for successbased fees described in Rev. Proc. 2011-29, 2011-18 I.R.B. 746.

# FACTS

Taxpayer was incorporated on Date 1 and commenced business operations on that date upon its acquisition of X% ownership of Company. Company files as the sole operating entity within the consolidated return filed by Taxpayer. The stock of Taxpayer upon formation was owned by a private equity investor.
The stock of Taxpayer was acquired by Holdings in what Taxpayer represents was a covered transaction under § 1.263(a)-5(e)(3) of the Income Tax Regulations. Taxpayer incurred success-based fees to facilitate the transaction. Holdings elected to be taxed as a corporation, and to file a consolidated federal income tax return with Taxpayer and Company. Following the execution of the sales transaction Taxpayer filed a short PLR-107578-20 2 period return for the pre-acquisition period of Date 2, through Date 3. However, the return was filed late due to a misinterpretation of the provisions of the consolidated return regulations providing the due date of the short period return. Taxpayer was aware of and intended to make the election under Rev. Proc. 2011-29, but was advised by its advisors that the late filing precluded Taxpayer from making an election under
Rev. Proc. 2011-29, so the short period return did not reflect an election to treat the success based as thirty percent facilitative, and seventy percent non-facilitative.

# LAW

Section 263(a)(1) of the Internal Revenue Code and § 1.263(a)-2(a) provide that no deduction shall be allowed for any amount paid out for property having a useful life substantially beyond the taxable year. In the case of an acquisition or reorganization of a business entity, costs that are incurred in the process of acquisition and that produce significant long-term benefits must be capitalized. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 89-90 (1992); Woodward v. Commissioner, 397 U.S. 572, 575-576 (1970).
Under § 1.263(a)-5, a taxpayer must capitalize an amount paid to facilitate a business acquisition or reorganization transaction described in § 1.263(a)-5(a). An amount is paid to facilitate a transaction described in § 1.263(a)-5(a) if the amount is paid in the process of investigating or otherwise pursuing the transaction. Whether an amount is paid in the process of investigating or otherwise pursuing the transaction is determined based on all of the facts and circumstances. See § 1.263(a)-5(b)(1).
Section 1.263(a)-5(f) provides that an amount that is contingent on the successful closing of a transaction described in § 1.263(a)-5(a) (“success-based fee”) is presumed to facilitate the transaction and thus must be capitalized. A taxpayer may rebut the presumption by maintaining sufficient documentation to establish that a portion of the fee is allocable to activities that do not facilitate the transaction, and thus may be deductible.
Rev. Proc. 2011-29 provides a safe harbor allocation of success-based fees paid in business acquisitions or reorganizations described in § 1.263(a)-5(e)(3). In lieu of maintaining the documentation required by § 1.263(a)-5(f), this safe harbor permits electing taxpayers to treat 70 percent of the success-based fee as an amount that does not facilitate the transaction (i.e., amounts that can be deducted). The remaining portion of the fee must be capitalized as an amount that facilitates the transaction.
Section 4.01 of Rev. Proc. 2011-29 allows the taxpayer to make the 70/30 safe harbor election with respect to success-based fees. Section 4.01(3) of Rev. Proc. 2011-29 provides that the taxpayer must attach a statement to its original Federal income tax return for the taxable year the success-based fee is paid or incurred, stating that the taxpayer is electing the safe harbor, identifying the transaction, and stating the success- based fee amounts that are deducted (treated as not facilitating the transaction) and capitalized (treated as facilitating the transaction).
PLR-107578-20 3
Taxpayer requests permission with this ruling request to treat seventy percent of the success based fees relating to the transaction as non-facilitative and to attach the statement required by Section 4.01(3) of Rev. Proc. 2011-29 to its Year 1 return, by amending its original filed return.
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 an election. Section 301.9100-2 provides automatic extensions of time for making certain elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of § 301.9100-2.
Section 301.9100-1(c) provides that the Commissioner of Internal Revenue, in exercising his discretion, may grant a reasonable extension of time under the rules set forth in § 301.9100-3 to make a regulatory election under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. The term “regulatory election” is defined in § 301.9100-1(b) as an election whose due date is prescribed by a regulation published in the Federal Register, or a revenue ruling, revenue procedure, or announcement published in the Internal Revenue Bulletin.
Section 301.9100-3(a) provides that requests for relief subject to this section will be granted when the taxpayer provides the evidence to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.
Section 301.9100-3(b)(1) provides that, in general, a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer: (i) requests relief before the failure to make the regulatory election is discovered by the IRS; (ii) failed to make the election because of intervening events beyond the taxpayer's control; (iii) failed to make the election because, after exercising reasonable diligence, the taxpayer was unaware of the necessity for the election; (iv) reasonably relied on the written advice of the IRS; or (v) reasonably relied on a qualified tax professional, and the tax professional failed to make, or advise the taxpayer to make, the election.
Section 301.9100-3(b)(3) provides that a taxpayer is deemed to have not acted reasonably and in good faith if the taxpayer: (i) seeks to alter a return position for which an accuracy-related penalty has been or could be imposed under § 6662 at the time the taxpayer requests relief and the new position requires or permits a regulatory election for which relief is requested; (ii) was informed in all material respects of the required election and related tax consequences but chose not to file the election; or (iii) uses hindsight in requesting relief.
Section 301.9100-3(c)(1) provides that the interests of the Government are prejudiced if granting relief would result in the taxpayer having a lower tax liability in the aggregate PLR-107578-20 4 for all taxable years affected by the election than the taxpayer would have had if the election had been timely made. The interests of the Government are ordinarily prejudiced if the taxable year in which the regulatory election should have been made, or any taxable years that would have been affected by the election had it been timely made, are closed by the period of limitations on assessment under § 6501(a) before the taxpayer's receipt of a ruling granting relief under this section.
Taxpayer's election is a regulatory election, as defined under § 301.9100-1(b), because the due date of the election is prescribed by Rev. Proc. 2011-29. In the present situation, the requirements of §§ 301.9100-1 and 301.9100-3 of the regulations have been satisfied.

# CONCLUSION

Based solely on the facts submitted and the representations made, we conclude that
Taxpayer acted reasonably and in good faith and that granting the request will not prejudice the interests of the Government. Accordingly, the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
Taxpayer is granted an extension of 60 days from the date of this ruling to attach the statement required by section 4.01(3) of Rev. Proc. 2011-29 to its return by amending its original filed return for Year 1, and superseding it with a return attaching a completed election statement with respect to the Transaction.
The rulings contained in this letter are based on information and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.
Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. In particular, no opinion is expressed as to whether Taxpayer properly included the correct costs as its success-based fees subject to the retroactive election or whether Taxpayer's Transaction is within the scope of Rev. Proc. 2011-29.
A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, a taxpayer filing its return electronically may satisfy this requirement by attaching a statement to its return that provides the date and control number of the letter ruling.
A copy of this letter is being sent to the appropriate operating division director. Enclosed is a copy of the letter ruling showing the deletions proposed to be made in the letter when it is disclosed under § 6110.
PLR-107578-20 5
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent.
Sincerely,
/s/
Sean M. Dwyer
Senior Technical Reviewer, Branch 1
Associate Office of Chief Counsel
Income Tax & Accounting cc: