PLR 200152007: S corporation granted time to elect QSub status for two subsidiaries

Plain-English summary

An S corporation intended two newly incorporated subsidiaries to be qualified subchapter S subsidiaries from their incorporation date but did not file the elections on time. The IRS found that the parent met the standards for late regulatory election relief. It granted 60 days from the ruling date to file Forms 8869 for both subsidiaries, effective from the stated incorporation date. The IRS did not decide whether the parent was a valid S corporation or the subsidiaries otherwise qualified as QSubs.

Ruling snapshot

• Question: Could the parent file late QSub elections for two subsidiaries?
• Outcome: Approved: 60 days to file Forms 8869, effective from the stated incorporation date.
• Key authorities: IRC § 1361(b)(3)(B); Treas. Reg. §§ 1.1361-3 and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200152007
Washington, DC 20224
Release Date: 12/28/2001
Index Number: 9100.00-00; 1361.05-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:BO1-PLR-143043-01
Date:
September 21, 2001

Legend

X =

X1 =

X2 =

D1 =

D2 =

D3 =

This responds to your letter dated, August 6, 2001, in which you requested relief under § 301.9100-1(c) of the Procedure and Administration Regulations.

Facts

According to the information submitted, X was incorporated on D1 and elected S status, effective on D2. X1 and X2 were incorporated on D3. X intended to treat X1 and X2 as qualified subchapter S subsidiaries (QSubs), effective on D3, but inadvertently failed to timely file the election.

Law and Analysis

Section 1361(b)(3)(B) of the Internal Revenue Code defines a QSub as a domestic corporation that 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.

A taxpayer makes a QSub election with respect to a subsidiary by filing a 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 the election will be effective on the date specified on the election form or on the date the election is
CC:PSI:B01-PLR-143043-01
2

filed if no date is specified. The effective date specified on the election 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.

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

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. Section 301.9100-3(a).

Conclusion

Based solely on the facts submitted and the representations made we conclude that X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. Accordingly, X is granted an extension of time of sixty (60) days from the date of this letter to elect to treat X1 and X2 as QSubs, effective as of D3. The election should be made by filing Form 8869 with the appropriate service center. A copy of this letter should be attached to the election.

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. Specifically, no opinion is expressed concerning whether X is a valid S corporation or whether X1 and X2 are valid QSubs.

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to the requested tax representatives.

Sincerely,
Paul F. Kugler
Associate Chief Counsel
(Passthroughs and Special Industries)
Enclosures (2)
Copy of this letter