IRS written determination 201423017

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201423017
Release Date: 6/6/2014
Index Number: 9100.00-00
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Attn: -----------------------------------------------------
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In Re: ---------------------------------------------------
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Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
-----------------, ID No. ----------------
Telephone Number:
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Refer Reply To:
CC:ITA:B03
PLR-144470-13
Date:
February 10, 2014
Legend:
Taxpayer= ----------------------------------
Subsidiary 1= --------------------------------
Subsidiary 2= --------------------------------
Corporation= -----------------------------
Corporation’s Subsidiary= --------------------------------
Investment Bank= ------------------------------
Tax Return Preparer= -----------------------------------------------------
Taxable Year= -----------------------------------------------------------------------
Date 1= ------------------------
Date 2= --------------------------
$a= --------------
Dear ----------------:
This responds to a letter ruling request dated October 25, 2013, submitted on behalf of
Taxpayer. Taxpayer requests an extension of time under §§ 301.9100-1 and 301.9100-
3 of the Procedure and Administration Regulations to make a late election concerning
the treatment of success-based fees in accordance with Rev. Proc. 2011-29, 2011-1
C.B. 746, which requires that a statement be attached to Taxpayer’s original federal
income tax return for Taxable Year.
FACTS

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Taxpayer operates as a holding company with its wholly owned subsidiaries, Subsidiary
1 and Subsidiary 2. In order to facilitate a possible transaction to sell some or all of
Subsidiary 1, Taxpayer engaged Investment Bank to render investment banking
services. The engagement letter provided that upon consummation of the transaction,
Investment Bank would be paid a fee that included a percentage-based success
component of the final transaction value.
Taxpayer and Subsidiary 1 were acquired by Corporation and its wholly owned
subsidiary, Corporation’s Subsidiary. Subject to the terms of the merger agreement,
Corporation’s Subsidiary merged with and into Taxpayer with Taxpayer being the
surviving entity and continuing as a wholly owned subsidiary of Corporation. The
merger was treated as a stock acquisition and is a covered transaction in accordance
with § 1.263(a)-5(e) of the Income Tax Regulations. The merger transaction closed on
Date 1. Upon closing of the merger transaction, Investment Bank was paid a success-
based fee of $a by wire transfer.
Taxpayer engaged Tax Return Preparer to prepare its federal income tax return for
Taxable Year, which included the merger transaction. During the preparation of the
income tax return, Taxpayer and Tax Return Preparer discussed the availability of the
safe harbor election provided in Rev. Proc. 2011-29. Taxpayer decided to take
advantage of the safe harbor election and instructed Tax Return Preparer to prepare the
return in this manner. Taxpayer relied on Tax Return Preparer as a qualified tax
professional to prepare a complete and accurate return. The federal income tax return
as filed included a deduction of 70% of the success-based fee while the remaining
$30% was capitalized, consistent with the requirements of the safe harbor election.
However, in preparing the federal income tax return, Tax Return Preparer omitted the
required statement making the election.
On or about Date 2, Tax Return Preparer reviewed Taxpayer’s federal income tax return
as filed and determined that the required election statement had been omitted.
Consequently, it was determined to request relief to late file the election under Rev. Rul.
2011-29, as the filing of a late election is within the discretion of the Commissioner
under §§ 301.9100-1 and 301.9100-3.
Taxpayer is requesting permission with this ruling request to supersede its originally
filed federal income tax return for Taxable Year with a return with the mandatory
election statement completed and attached. The statute of limitations has not run for
Taxable Year and thus, Taxable Year is still open to tax assessment.
LAW
Section 263(a) of the Internal Revenue Code provides generally that no deduction is
allowed forany amount paid out for new buildings or for permanent improvements or
betterments made to increase the value of any property or estate or any amount

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3
expended in restoring property or in making good the exhaustion thereof for which an
allowance is or has been made. Section 1.263(a)-1T(c)(3) provides that no deduction is
allowed for an amount paid to acquire or create an intangible, which under §§ 1.263(a)-
4(c)(1)(i) and 1.263(a)-4(d)(2)(i)(A) includes an ownership interest in a corporation or
other entity. See also § 1.263(a)-4(a).
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. See INDOPCO, Inc. v. Commissioner, 503 U.S. 79 (1992);
Woodward v. Commissioner, 397 U.S. 572 (1970).
Under § 1.263(a)-5, a taxpayer must capitalize an amount paid to facilitate the business
acquisition or reorganization transactions described in § 1.263(a)-5(a). In general, an
amount ispaid 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. Section 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) (i.e., a success-based fee) is an
amount paid to facilitate the transaction except to the extent the taxpayer maintains
sufficient documentation to establish that a portion of the fee is allocable to activities
that do not facilitate the transaction. This documentation must be completed onor
before the due date of the taxpayer's timely filed original federal income tax return
(including extensions) for the taxable year during which the transaction closes.
Section 4.01 of Rev. Proc. 2011-29 provides a safe harbor election for taxpayers that
pay or incur success-based fees for services performed in the process of investigating
or otherwise pursuing a covered transaction described in § 1.263(a)-5(e)(3). In lieu of
maintaining the documentation required by § 1.263(a)-5(f), a taxpayer may electto
allocate a success-based fee between activities that facilitate the transaction and
activities that do not facilitate the transaction by treating 70 percent of the amount of the
success-based fee as an amount that does not facilitate the transaction and by
capitalizing the remaining 30 percent as an amount that does facilitate the transaction.
In addition, 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 and capitalized.
Section 301.9100-1(c) provides that the Commissioner has discretion to grant a
reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
to make certain regulatory elections. Section 301.9100-1(b) defines a "regulatory
election" as an election whose due date is prescribed by a regulation published in the

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Federal Register, or a 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 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 301.9100-3(a) provides that requests for extensions of time for regulatory
elections (other than automatic changes covered under section 301.9100-2) will be
granted when the taxpayer provides evidence (including affidavits described in the
regulations) 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(b)(1) provides that a taxpayer will be 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
Service;
(ii) inadvertently failed to make the election because of intervening events beyond the
taxpayer's control;
(iii) failed to make the election because, after exercising due diligence, the taxpayer was
unaware of the necessity for the election;
(iv) reasonably relied on the written advice of the Service; 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 will not be considered to have acted
reasonably and in good faith if the taxpayer --
(i) seeks to alter a return position for which an accuracy-related penalty could be
imposed under § 6662 at the time the taxpayer requests relief and the new position
requires 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

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(iii) uses hindsight in requesting relief. If specific facts have changed since the original
deadline that make the election advantageous to a taxpayer, the Service will not
ordinarily grant relief.
Section 301.9100-3(c)(1) provides that the Commissioner will grant a reasonable
extension of time only when the interests of the Government will not be prejudiced by
the granting of relief. The interests of the Government are prejudiced if granting relief
would result in a taxpayer having a lower tax liability in the aggregate 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.
ANALYSIS
Taxpayer’s election is a regulatory election, as defined under § 301.9100-1(b), because
the due date of the election is prescribed in the Income Tax Regulations under
§ 1.263(a)-5(f). The Commissioner has the authority under §§ 301.9100-1 and
301.9100-3 to grant an extension of time to file a late regulatory election.
The information and representations made by Taxpayer establish that Taxpayer acted
reasonably and in good faith. Taxpayer reasonably relied on Tax Return Preparer, a
qualified tax professional, to prepare its federal income tax return for Taxable Year.
Taxpayer is not seeking to alter a return position for which an accuracy related penalty
has been or could be imposed under § 6662 of the Code at the time relief is requested.
Taxpayer did not affirmatively choose not to make the election after having been
informed in all material respects of the required election and related tax consequences.
Rather, Taxpayer intended to take advantage of the safe harbor provisions in Rev. Proc.
2011-29 and filed its return for Taxable Year reflecting those provisions but failed to
include the required election statement. Taxpayer is not using hindsight in requesting
relief.
Further, based on the facts of the case provided, granting an extension will not
prejudice the interests of the Government. Taxpayer will not have a lower tax liability in
the aggregate for all taxable years affected by the election if given permission to make
the election at this time than Taxpayer would have had if the election had been timely
made. In addition, the taxable year in which the regulatory election should have been
made and any taxable years that would have been affected by the election had it been
timelymade will not be closed by the period of limitations on assessment under §
6501(a) before Taxpayer’s receipt of the ruling granting an extension of time to make a
late election.

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RULING
Based upon our analysis of the facts as represented, we conclude that Taxpayer acted
reasonably and in good faith, and granting relief will not prejudice the interests of the
government. Accordingly, the requirements of §§ 301.9100-1 and 301.9100-3 have
been met.
Taxpayer is granted an extension of 45 days from the date of this ruling to file the
statement required by section 4.01(3) of Rev. Proc. 2011-29, stating that it is electing
the safe harbor for success-based fees, identifying the transaction, and stating the
success-based fee amounts that are deducted and capitalized.
The rulings contained in this letter are based upon information and representations
submitted by Taxpayer and accompanied by a penalty of perjury statement executed by
appropriate parties. 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, including whether Taxpayer properly included the correct costs as its
success-based fees subject to the election, or whether Taxpayer's transaction was
within the scope of Rev. Proc. 2011-29.
This 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 ruling should be attached to Taxpayer's federal income tax returns for the
tax years affected. Alternatively, taxpayers filing returns electronically may satisfy this
requirement by attaching a statement to their return that provides the date and control
number of this ruling.

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In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to yourauthorized representatives. We are also sending a copy of this letter
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 of the Code.
Sincerely,
Christopher F. Kane
Branch Chief, Branch 3
(Income Tax & Accounting)
Enclosure (1)