PLR 200202024: More time to elect qualified S subsidiary treatment

Plain-English summary

An S corporation bought all the shares of another corporation and intended to elect qualified subchapter S subsidiary treatment effective on the acquisition date. It inadvertently failed to file the election. The IRS found that the requirements for discretionary filing relief were met and granted 60 days from the letter date to make the QSub election. It also directed the corporations to amend S corporation returns that showed inaccurate ownership information. The IRS did not decide whether the subsidiary otherwise qualified for the election.

Ruling snapshot

• Question: Could the parent make a late QSub election for its wholly owned subsidiary?
• Outcome: Approved: 60-day extension to file the election, with return amendments required.
• Key authorities: IRC § 1361(b)(3)(B); Treas. Reg. §§ 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200202024 Washington, DC 20224
Release Date: 1/11/2002
Index Number: 9100.00-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:3 PLR-109962-01
Date:
September 27, 2001

Company:

Company’s
Shareholders:

Corp:

Corp’s
Shareholders:

State:

Address:
a:
b:
c:
d:
e:
f:

Dear
 2
PLR-109962-01

This letter responds to a letter dated February 9, 2001, from your authorized representative, as well as subsequent correspondence, requesting an extension of time for Company to elect under § 1361(b)(3)(B) of the Internal Revenue Code to treat Corp as a qualified subchapter S subsidiary (QSub).

According to the information submitted, Company was formed on a as a State corporation for the purpose of acquiring stock in Corp. Company filed an election to be treated as an S corporation on b. Corp was formed on c. It filed an election to be treated as an S corporation, to be effective d.

Company acquired all the shares of Corp from Corp’s Shareholders on e.
Company’s Shareholders intended that Company should make a QSub election for Corp as of this date, but Company inadvertently failed to file the election.

Section 1361(b)(3)(B) provides that, for purposes of § 1361(b)(3) (Treatment of Certain Wholly Owned Subsidiaries), the term “qualified subchapter S subsidiary” means any domestic corporation which is not an ineligible corporation (as defined in § 1361(b)(2)), if–

(i) 100 percent of the stock of such corporation is held by the S corporation, and

(ii) the S corporation elects to treat such corporation as a QSub.

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.

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 a regulatory election. Section 301.9100-1(a).

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.

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).

Based on the facts and representations submitted, Company has established that the requirements of §§ 301.9100-1 and 301.9100-3 are satisfied. Consequently, Company is granted an extension of 60 days from the date of this letter for electing 3 PLR-109962-01

under § 1361(b)(3)(B) to treat Corp as a QSub. Within the extension period, Company must file the election with the Chief, Planning and Special Programs, Area 5, at Address for association with Company’s return. A copy of this letter should be attached to the election statement.

The ruling request indicates that the Forms 1120S filed by Company and Corp for f reflect inaccurate ownership information. These returns must be amended accordingly.

Except for the specific ruling above, no opinion is expressed or implied concerning the federal tax consequences of the facts of this case under any other provision of the Code. Section 301.9100-1(a) provides that the granting of an extension of time for making an election is not a determination that the taxpayer is otherwise eligible to make the election.

In accordance with the power of attorney on file with this office, we are sending a copy of this letter to your authorized representative.

This ruling is directed only to the taxpayer on whose behalf it was requested.
According to § 6110(k)(3), this ruling may not be used or cited as precedent.

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

Enclosures: Copy of this letter
Copy for § 6110 purposes