PLR 200105028: Extension granted for three QSub elections

Plain-English summary

An S corporation acquired all the stock of three other S corporations and intended to elect qualified Subchapter S subsidiary treatment for each of them. It relied on a tax professional, but the required election forms were not filed. The IRS found the requirements for an extension under the section 301.9100-3 regulations satisfied. It granted 60 days from the ruling date to file Form 8869 elections effective from the requested date. The IRS did not decide whether the parent was eligible as an S corporation or whether the subsidiaries otherwise qualified as QSubs.

Ruling snapshot

• Question: May the parent file late QSub elections for its three subsidiaries?
• Outcome: Approved; Form 8869 elections must be filed within 60 days.
• Key authorities: IRC § 1361(b)(3)(B); Treas. Reg. §§ 301.9100-1 and 301.9100-3; Notice 97-4.

Full text (IRS public release)

INTERNAL REVENUE SERVICE

Number: 200105028
Release Date: 2/2/2001
Index Nos.: 9100.00-00, 1361.05-00

CC:DOM:P&SI:2 - PLR-113283-00

October 26, 2000

A =

X =

Y1 =

Y2 =

Y3 =

Date 1 =
Date 2 =

Dear

This responds to a letter dated June 6, 2000, and subsequent correspondence, submitted on X’s behalf, requesting that X be given an extension of time in which to elect to treat each of Y1, Y2, and Y3 as a qualified subchapter S subsidiary (QSub) under § 1361(b)(3)(B) of the Internal Revenue Code.

The information submitted states that X incorporated on Date

1. X filed its S corporation election effective for Date 2. The
   shareholders of Y1, Y2,and Y3, each an S corporation, transferred their stock in those corporations to X in exchange for stock in X on Date 2. A, as the president of X, represents that X intended to treat each of Y1, Y2,and Y3 as a QSub effective on Date 2. X relied on a tax professional to make the QSub elections. However, the Form 966, Corporate Dissolution or Liquidation, was

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not filed.

Section 1361(b)(3)(B) defines the term "qualified subchapter S subsidiary" (QSub) as a domestic corporation which is not an ineligible corporation, if 100 percent of the stock of the corporation is owned by an S corporation, and the S corporation elects to treat the corporation as a QSub. The statutory provision does not, however, provide guidance on the manner in which the QSub election is made or the effective date of the election.

On January 13, 1997, the Service published Notice 97-4, 1997-1 C.B. 351, providing a temporary procedure for the making of a QSub election. Under Notice 97-4, a taxpayer makes a QSub election with respect to a subsidiary by filing a Form 966, subject to certain modifications, with the appropriate service center. The election may be effective on the date the Form 966 is filed or up to 75 days prior to the filing of the form, provided that the date is not before the parent’s first taxable year beginning after December 31, 1996, and that the subsidiary otherwise qualifies as a QSub for the entire period for which the retroactive election is in effect. Form 8869, Qualified Subchapter S Subsidiary Election, published in September 2000, replaced Form 966 for making the Qsub election.

Section 301.9100-1(c) of the Procedure and Administration Regulations provides that the Commissioner has the discretion to grant a reasonable extension of the time, under the rules set forth in §§ 301.9100-2 and 301.9100-3, to make a regulatory election. Section 301.9100-1(b) defines regulatory election as an election whose due date is prescribed by a regulation published in the Federal Register, or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections.
Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) granting relief will not prejudice the interests of the government.

In the present situation, the requirements of § 301.9100-3 have been satisfied. As a result, X is granted an extension of time to make elections to treat Y1, Y2, and Y3, as QSubs,

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effective Date 2, until 60 days following the date of this letter. The elections should be made by following the instructions set forth in Form 8869. A copy of this letter should be attached.

Except as specifically ruled upon above, no opinion is expressed concerning the federal tax consequences of the facts described above under any other provisions of the Code, including whether X was a small business corporation under § 1361(b) and whether Y1, Y2, or Y3 otherwise qualify as QSubs for federal tax purposes.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.
Pursuant to the power of attorney on file with this office, a copy of this letter is being sent to X’s authorized representative.

Sincerely yours,

PAUL F. KUGLER
Associate Chief Counsel
(Passthroughs and
Special Industries)

Enclosures: 2
Copy of this letter
Copy for § 6110 purposes