PLR 200145027: S corporation receives more time to elect QSub status

Plain-English summary

An S corporation wanted its wholly owned subsidiary to be a qualified subchapter S subsidiary from the subsidiary's incorporation date. The parent failed to file the QSub election on time and requested relief under the election extension regulations. The IRS found that the requirements for relief were met and gave the parent 60 days from the letter to file Form 8869 with the intended effective date. It did not decide whether the parent was a valid S corporation or the subsidiary otherwise qualified as a QSub.

Ruling snapshot

• Question: Can the parent make a late QSub election effective from the subsidiary's incorporation date?
• Outcome: Yes. The parent received 60 days to file Form 8869.
• Key authorities: IRC § 1361(b)(3)(B); Treas. Reg. §§ 1.1361-3(a)(4), 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200145027
Washington, DC 20224
Release Date: 11/9/2001
Index Number: 9100.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:1-PLR- 134544-01
Date:
August 9, 2001

X
=

Y
=

State =

D1
=

D2
=

D3
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:

This letter responds to a letter dated May 24, 2001, written on behalf of X, requesting a ruling that X be granted an extension of time under § 301.9100-1 of the Procedure and Administration Regulations to elect to treat its first tier subsidiary, Y, as a qualified subchapter S subsidiary (QSub).

FACTS

According to the information submitted, X was incorporated under State law on D1 and elected subchapter S status on D2. Y was incorporated on D3 and is a wholly- owned subsidiary of X. X intended to treat Y as a QSub effective D3; however, X failed to timely file the proper election. When X discovered its failure to elect QSub status, X submitted this private letter ruling request, asking for late QSub election relief, effective D3, under §§ 301.9100-1 through 301.9100-3. 2 PLR-134544-01

LAW AND ANALYSIS

Section 1361(b)(3)(B) defines the term “qualified subchapter S subsidiary” as a domestic corporation which is not an ineligible corporation as defined in § 1361(b)(2), if (1) an S corporation holds 100 percent of the stock of the corporation, and (2) that S corporation elects to treat the subsidiary as a QSub. The election is made by filing Form 8869, Qualified Subchapter S Subsidiary Election, with the appropriate service center.

Section 1.1361-3(a)(4) of the Income Tax Regulations provides that a QSub election will be effective on the date specified on the election form or on the date the election is filed if no date is specified. The effective date specified on the form cannot be more than two months and 15 days prior to the date of filing and cannot be more than 12 months after the date of filing.

Under § 301.9100-1(c) of the Procedure and Administration Regulations, the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than six months except in the case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G, H and I, if the taxpayer demonstrates to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting the relief will not prejudice the interests of the government. Section 301.9100-1(b) defines the term “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.

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 310.9100-2 provides automatic extensions of time for making certain elections, but does not apply to QSub elections. Section 301.9100-3 provides extensions of time for making elections that do not meet the requirements of § 301.9100-2. Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government.

CONCLUSIONS

Based solely on the facts submitted and the representations made, the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a result, X is granted an extension of time of sixty (60) days from the date of this letter to make an election to treat its wholly owned subsidiary Y as a QSub effective D3. X should submit the properly completed Form 8869 to the appropriate service center. A copy of this letter should be attached to the Form 8869 filed with the service center. 3 PLR-134544-01

Except as specifically set forth above, no opinion is expressed or implied concerning the federal tax consequences of the facts described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether X is a valid S corporation or whether its subsidiary Y is a valid QSub.

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 the taxpayer.

Sincerely yours,
Paul F. Kugler
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for section 6110 purposes