PLR 200316032: Extra time to elect qualified S subsidiary status

Plain-English summary

An S corporation formed a wholly owned subsidiary and intended to elect qualified subchapter S subsidiary (QSub) treatment from the subsidiary's incorporation date. Form 8869 was not filed on time because of an inadvertent error. The IRS found that the company met the requirements for discretionary filing relief and granted 60 days to submit Form 8869 with the intended effective date. It did not decide whether the parent was a valid S corporation or whether the subsidiary otherwise qualified for QSub status.

Ruling snapshot

• Question: Could the parent file a late QSub election effective from the subsidiary's incorporation date?
• Outcome: Approved: 60 days to file Form 8869 with the intended effective date.
• 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: 200316032
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-150419-02
Date:
January 13, 2003

Legend

X
=

Sub =

Year 1 =

Date 1 =

Dear
:

This letter responds to your letter dated August 27, 2002, written on behalf of X, requesting that the Service grant X 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 for the taxable year beginning Year 1. Sub, a wholly owned subsidiary of X, was incorporated on Date 1. X represents that it intended to treat Sub as a qualified subchapter S subsidiary effective on Date 1. However, due to inadvertence the Form 8869, Qualified Subchapter S Subsidiary Election, was not timely filed.

PLR-150419-02
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 it 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 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 1. 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.

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.

PLR-150419-02
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Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X.

Sincerely yours,

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

Enclosures:
2 Copy of this letter
Copy for 6110 purposes