PLR 200316026: Parent gets more time for QSub election

Plain-English summary

An S corporation acquired all of a subsidiary's stock and intended to elect qualified subchapter S subsidiary (QSub) treatment from the acquisition date. It inadvertently missed the Form 8869 filing deadline. The IRS found that the parent met the requirements for discretionary relief and granted 60 days to file the election with the intended effective date. The letter does not determine whether the parent was a valid S corporation or the subsidiary was eligible for QSub status.

Ruling snapshot

• Question: Could the parent make a late QSub election effective on the acquisition date?
• Outcome: Approved: 60 days to file Form 8869.
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a)(4), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200316026
Washington, DC 20224
Release Date: 4/18/2003
Index Number: 9100.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2-PLR-150399-02
Date:
January 8, 2003

Legend

X
=

Sub =

Date 1 =

Date 2 =

Dear
:

This letter responds to a letter dated September 3, 2002, together with subsequent correspondence, submitted on behalf of X, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to elect to treat Sub as a qualified subchapter S subsidiary (QSub) under § 1361(b)(3) of the Internal Revenue Code.

Facts

The information submitted states that X is a corporation that elected to be an S corporation effective Date 1. X acquired 100% of Sub’s stock on Date 2. X represents that X intended to treat Sub as a QSub effective Date 2. However, X inadvertently failed to timely file the proper election.
PLR-150399-02
2

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 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 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), 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 301.9100-2 and 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-2 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.

Conclusion

Based solely on the facts and the representations submitted, we conclude that the requirements of § 301.9100-3 have been satisfied. As a result, X is granted an extension of time for 60 days from the date of this letter to file a Form 8869 to elect to treat Sub as a QSub effective Date 2. A copy of this letter should be attached to the election.

Except as specifically set forth above, no opinion is expressed 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 Sub is qualified to elect QSub status.
PLR-150399-02
3

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.

Sincerely,

Heather C. Maloy
Associate Chief Counsel
(Passthroughs and Special Industries)

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