Dover Corporation (U.S.) owned H&C, a U.K. target, through a wholly owned chain: Dover owned DCF (U.S.) 100%, DCF owned Dover UK (the seller) 100%, and Dover UK owned H&C (the target) 100%. Dover UK agreed to sell its shares in H&C to Thyssen (Germany) on June 30, 1997, and that sale closed on July 11, 1997.
After the sale closed, Dover UK made a retroactive check-the-box election under § 301.7701-3 to treat H&C as a disregarded entity effective June 30, 1997. Electing disregarded status is deemed to cause a liquidation of H&C into its owner, Dover UK. Because H&C was then disregarded, the sale of its stock was treated for U.S. tax purposes as a sale of H&C’s underlying assets rather than a sale of stock.
The characterization mattered for Subpart F. Gain on the sale of H&C stock would generally have been foreign personal holding company income and thus Subpart F income to Dover under IRC § 954(c)(1)(B). Recharacterized as a deemed asset sale, the gain (if any) on the disposition of H&C’s active business assets generally was not Subpart F income.
The catch was timing. Dover did not timely file the election; on December 3, 1998 it requested “9100 relief” to file a late check-the-box election, and on March 31, 2000 the IRS granted relief allowing the election for H&C effective June 30, 1997.
Electing to treat wholly owned H&C as a disregarded entity is deemed to liquidate it into Dover UK, so a later sale of “stock” is recharacterized as a sale of H&C’s assets.
Stock-sale gain would have been foreign personal holding company income under IRC § 954(c)(1)(B); gain on the deemed sale of active business assets generally is not Subpart F income.
The election was made effective June 30, 1997 — the deemed liquidation is treated as occurring before the July 11, 1997 closing, so the buyer Thyssen acquires H&C as a disregarded entity.
Because Dover missed the filing deadline, it obtained § 9100 relief; the IRS granted a late check-the-box election effective June 30, 1997, preserving the intended treatment.
