When a critical tax election is missed in connection with a complex M&A transaction, the financial consequences can be devastating. For one Metz Lewis client, a missed Section 336(e) election threatened to eliminate hundreds of thousands of dollars in future tax benefits. Here’s how Metz Lewis successfully navigated the IRS Private Letter Ruling process to preserve these valuable deductions.
The Challenge: A Costly Miscommunication
Our client, the buyer, completed its acquisition of the stock of the seller—both parties are taxed as S-Corporations. The transaction was purposefully structured to include an election under IRC Section 336(e), which would treat the stock purchase as an asset sale for tax purposes. This election is far from a mere formality—it unlocks significant future depreciation deductions for the buyer.
However, as the transaction closed on the last day of February, the filing of a short-period income tax return on Form 1120-S was required. The Section 336(e) election must be attached to a timely-filed return, but due to a miscommunication between the parties’ tax advisors, the short-period return was never filed. The election deadline passed, and with it, seemingly, the valuable tax benefits to our client.
The Strategic Solution: Pursuing Regulatory Relief
Rather than accepting this costly outcome, Metz Lewis immediately engaged with the client’s advisors to explore remediation options. We identified a potential path forward through the IRS Office of Chief Counsel.
Our team initiated direct contact with Chief Counsel to present the fact pattern and evaluate the IRS’s willingness to grant regulatory relief through a joint late Section 336(e) election. After careful analysis, we determined that under these specific circumstances, the IRS might be receptive to providing relief via a Private Letter Ruling (PLR).
The Process: Expert Navigation of IRS Procedures
Securing a favorable PLR requires more than just filing paperwork—it demands technical precision, strategic communication, and persistence. The Metz Lewis team:
- Drafted a comprehensive PLR request that clearly articulated the facts, applicable law, and justification for relief
- Submitted the request to the IRS with supporting documentation
- Collaborated closely with the IRS Chief Counsel’s Office over several months
- Responded promptly to all questions and information requests
- Made necessary supplemental submissions to address the IRS’s concerns
Throughout this process, our deep understanding of tax law and experience working with the IRS proved invaluable in guiding the case toward a successful resolution.
The Result: Hundreds of Thousands in Tax Savings Preserved
After months of collaboration, the IRS granted our PLR request, allowing the late Section 336(e) election. This victory preserved our client’s ability to claim substantial depreciation deductions that will save hundreds of thousands of dollars in future tax liability.
If you have questions about transactional tax issues, IRS guidance, or tax controversy matters, contact Michael Herzog or view his attorney bio here.
At Metz Lewis, we combine technical tax expertise with practical problem-solving to protect our clients’ financial interests. Whether you’re navigating complex M&A transactions, facing tax compliance challenges, or seeking to remediate past issues, our team has the knowledge and relationships to achieve results.
