PLR 200403036: S corporation gets 60 days to elect subsidiary treatment

Plain-English summary

An S corporation wholly owned another corporation and intended to treat it as a qualified subchapter S subsidiary from the parent's formation date. It inadvertently missed the deadline to file the election on Form 8869. The IRS found that the parent met the requirements for regulatory election relief and granted 60 days from the letter date to file the form with the intended effective date. The ruling granted time to elect but did not decide whether the parent was a valid S corporation or the subsidiary was a valid qualified subsidiary.

Ruling snapshot

• Question: May the parent make a late qualified subchapter S subsidiary election?
• Outcome: Approved: 60 additional days to file Form 8869.
• Key authorities: IRC § 1361(b)(3)(B); Treas. Reg. §§ 1.1361-3, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200403036
Release Date: 01/16/2004
Index Number: 9100.00-00; 1361.05-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B1 – PLR-139793-03
Date:
October 7 2003

Legend

X = ---------------------------------
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X1 = -----------------------------------------
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D1 = ----------------------

D2 = --------------------------

Dear -------------:

This responds to your letter dated, June 26, 2003, submitted on behalf of X, requesting and extension of time under § 301.9100-1(c) of the Procedure and Administration Regulations to elect to treat X1 as a qualified subchapter S subsidiary (QSub) for federal tax purposes.

Facts

According to the information submitted, X was incorporated on D2 and elected S status, effective D2. X1 was incorporated on D1. On D2, X, which wholly owned X1
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intended to treat X1 as a qualified subchapter S subsidiary (QSub), effective D2, 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 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 as a QSub, effective as of D2. 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 is a valid QSub.
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This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) 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 your authorized tax representative.

Sincerely,

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