PLR 200450021: Late QSub election permitted for a newly formed subsidiary

Plain-English summary

An S corporation wholly owned a subsidiary formed under state law and intended to treat it as a qualified subchapter S subsidiary from its incorporation date. The parent inadvertently missed the deadline for a proper election. The IRS concluded that the requirements for regulatory election relief were satisfied and granted 60 days from the letter's date to file Form 8869. The IRS did not determine whether the parent was otherwise a valid S corporation or the subsidiary was otherwise a valid QSub.

Ruling snapshot

• Question: Could the parent elect QSub status for its subsidiary after the usual deadline?
• Outcome: Approved; a 60 day extension was granted.
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200450021
Release Date: 12/10/04
Index Numbers: 9100.22-00

• Person To Contact:
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  ------------------------------------ Telephone Number:
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  Refer Reply To:
  CC:PSI:2 – PLR-123371-04
  Date:
  August 05, 2004

Legend

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

Y = ---------------------------------
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d1 = ---------------------------

d2 = ----------------------

d3 = ---------------------

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

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

This responds to a letter dated April 20, 2004, submitted on behalf of X, by X’s authorized representative, requesting that the Service grant X an extension of time pursuant to § 301.9100-1(c) of the Procedure and Administration Regulations to elect to treat Y as a qualified subchapter S subsidiary (QSub) under § 1361(b)(3) of the Internal Revenue Code.

2

According to the information submitted, X was incorporated on d1 and elected to be an S corporation effective d2. Y was incorporated on d3, under the laws of State. X, which wholly owns Y, intended to treat Y as a QSub effective d3. However, X inadvertently failed to timely file a proper election for Y.

Section 1361(b)(3)(B) 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.

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.

Based solely on the information 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 Y as a QSub effective d3. The election should be made by filing Form 8869, Qualified Subchapter S Subsidiary Election, with the appropriate service center. A copy of this letter should be attached to the election. A copy is enclosed for this 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 a valid S corporation or whether Y is a valid QSub for federal tax purposes.

3

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
Associate Chief Counsel
(Passthroughs and Special Industries)

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