PLR 200418031: More time to elect qualified S subsidiary treatment

Plain-English summary

An S corporation intended to treat its wholly owned subsidiary as a qualified subchapter S subsidiary (QSub) from a specified date but failed to file the election on time. The IRS found that the parent met the requirements for late election relief. It gave the parent 60 days from the ruling date to file Form 8869 electing QSub treatment from the intended date. The IRS did not decide whether the parent actually qualifies as an S corporation or the subsidiary qualifies as a QSub.

Ruling snapshot

• Question: May the parent make a late QSub election for its subsidiary?
• 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), 301.9100-1 through 301.9100-3; Notice 2000-58.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200418031
Release Date: 04/30/2004
Index Number: 9100.00-00

--------------------------------------
Person To Contact:
---------------------------
----------------, ID No. -------------
-----------------------------
Telephone Number:
--------------------------------
---------------------
Refer Reply To:
In Re: CC:PSI:01 – PLR-156389-03
---------------------------
Date:
-----------------------------
Jan 12 2004
--------------------------------

Legend:

X = ---------------------------
--------------------------------------------------

Y = --------------------------------------------
-------------------------------------------------

State = ---------------

Date 1 = -----------------

Date 2 = -----------------

Date 3 = -----------------------

Date 4 = ----------------------

Dear --------------

This responds to your request dated September 2, 2003, on behalf of X, requesting that X be given an extension of time under section 301.9100-1 of the Procedures and Administration Regulations in which to elect to treat its wholly-owned subsidiary, Y, as a qualified subchapter S subsidiary (QSub) under section 1361(b)(3) of the Internal Revenue Code.

FACTS
2

According to the information submitted, X was incorporated under State law on Date 1 and elected subchapter S status effective on Date 2. Y was incorporated on Date 3 and is a wholly-owned subsidiary of X. X intended to treat Y as a QSub effective Date 4; however, X inadvertently failed to timely file the proper election.

X represents that it has acted reasonably and in good faith, that granting relief will not prejudice the interests of the government, and that it is not using hindsight in making the election.

LAW AND ANALYSIS

Section 1361(b)(3)(B) defines the term Aqualified subchapter S subsidiary@ as a domestic corporation which is not an ineligible corporation as defined in section 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.

Section 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 with the appropriate service center the form prescribed by the Internal Revenue Service. The election may be effective no more than two months and 15 days prior to the date of the filing, provided that the subsidiary otherwise qualifies as a QSub for the entire period for which the retroactive relief is in effect. 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 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 section 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. Requests for relief under section 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 the term Aregulatory election@ as including as election whose due date is prescribed by a regulations published in the Federal Register.

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).
3

Section 310.9100-2 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 section 301.9100-2.

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that the requirements of section 301.9100-3 have been satisfied. Accordingly X is granted an extension of time of sixty (60) days from the date of this letter to file a Form 8869 with the appropriate service center to elect to treat Y as a QSub effective Date 4. A copy of this letter should be attached to the election. A copy is enclosed for that purpose.

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 an S corporation or whether Y is a QSub for federal tax purposes.

This ruling is directed only to the taxpayer(s) 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 will be sent to the taxpayer representative.

Sincerely,

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

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