1042 Transaction: Failure to timely file Statement of Election

[Guest John Nelson]

Taxpayer sold shares to ESOP in 1999. Taxpayer intended that sale qualify under Code section 1042. Sale satisfied requirements of section 1042 (i.e., ESOP owns at least 30% of stock, 3-yr holding requirement), but -- taxpayer did not file Statement of Election or Statement of Purchase with his 1999 Federal or State income tax returns. Taxpayer is considering filing an amended 1999 return and including such statements. And, we're considering requesting a private letter ruling that by filing amended return and statements, taxpayer should be treated as having complied with 1042 requirements. PLRs seem to distinguish between statutory requirements (e.g., the Statement of Election must be filed by due date for 1999 return under 1042©(6)) and requirements under regulations (e.g., notarized Statements of Purchase). I've seen conflicting PLRs where IRS granted relief even though Statement of Election was not timely filed, but other PLRs where IRS denied relief because Statement of Election was not timely filed. My question is: Does anyone have thoughts/comments on what the likely result of a PLR request would be under these circumstances?

[RLL]

I think that the IRS has provided relief only for failure to obtain Statements of Purchase, which is a requirement imposed by the temporary regulations. Since the election is a statutory requirement of IRC section 1042(a)(1), the IRS is unlikely to permit the filing of a Statement of Election with an amended return.

Also, inasmuch as section 1042©(6) requires that the election be made by the due date for filing the return, how can the IRS waive this clear statutory rule?

The request for a PLR is probably a waste of time. I suggest that you discuss this matter with Employee Plans folks in the IRS National Office to ascertain their position.

Perhaps the taxpayer can secure some relief by making claims against the advisers responsible for this error.

[Guest John Nelson]

Thank you very much RLL for your response. I appreciate your perspective.