PLR 200324055: Extra time to elect subsidiary treatment under S corporation rules

Plain-English summary

An S corporation intended to treat its subsidiary as a qualified subchapter S subsidiary from the parent's incorporation date but failed to file the election on time. Its accounting firm discovered the omission while preparing tax returns. The IRS granted 60 days from the letter date to file Form 8869 and make the election effective on the originally intended date. The ruling is limited to the filing extension; it does not decide whether the parent is a valid S corporation or whether the subsidiary otherwise qualifies for the requested treatment.

Ruling snapshot

• Question: May the S corporation file a late election to treat its subsidiary as a qualified subchapter S subsidiary from the intended date?
• Outcome: Approved: 60 days to file Form 8869.
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a), 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200324055
Washington, DC 20224
Release Date: 6/13/2003
Index Number: 9100.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:PSI:2 - PLR-163808-02
Date:
March 13, 2003
X
=

Sub 1 =

d1 =

d2 =

Accounting Firm =

Dear
:

This is in reply to your letter dated November 19, 2002 submitted 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 1, as a qualified subchapter S subsidiary (QSub) under § 1361(b)(3) of the Internal Revenue Code.

The information submitted states that X is a corporation that elected to be an S corporation effective as of its incorporation on d1. X represents that X intended to treat Sub 1 as a QSub effective d1. However, X inadvertently failed to timely file the proper election to treat Sub 1 as a QSub effective d1.

On d2, in the course of preparing X’s tax returns, Accounting Firm discovered that X had not filed an election to treat Sub1 as a QSub.

Section 1361(b)(3)(B) defines the term “qualified subchapter S subsidiary” (QSub) as a domestic corporation which is not an ineligible corporation, if 100 percent of the stock of the corporation is owned by the S corporation, and the S corporation elects to treat the corporation as a QSub.

Section 1.1361-3(a) of the Income Tax Regulations provides that an S corporation may elect to treat an eligible subsidiary as a QSub by filing the form prescribed by the IRS and that the election may be effective no more than two months and 15 days prior to the date of the filing. Notice 2000-58, 2000-2 C.B. 491, provides that Form 8869, Qualified Subchapter S Subsidiary Election, should be used to elect QSub treatment. If a valid QSub election is made, the subsidiary is not treated as a

-2-
PLR-163808-02

separate corporation, and all assets, liabilities, and items of income, deduction, and credit of the QSub are treated as assets, liabilities, and items of income, deduction, and credit of the parent S corporation.

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 E, G, H, and I. 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). Section 301.9100-1(b) defines a regulatory election to include 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 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.

Based on the information submitted and the representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. As a result, X is granted an extension of time of 60 days from the date of this letter to file a Form 8869 to elect to treat Sub 1 as a QSub effective d1. A copy of this letter should be attached to the Form 8869. A copy is included for that purpose.

Except as specifically set forth above, we express no opinion concerning the federal tax consequences of the transactions described above under any other provisions of the Code. Specifically, no opinion is expressed concerning whether X is a valid S corporation or whether Sub 1 is otherwise a valid QSub for federal tax purposes.

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

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

Sincerely,
HEATHER C. MALOY
Associate Chief Counsel
(Passthroughs & Special Industries)
Enclosures: 2
Copy of this letter
Copy for § 6110 purposes