PLR 200452023: S corporation receives 60 days to make late subsidiary election

Plain-English summary

An S corporation intended to treat its wholly owned subsidiary as a qualified subchapter S subsidiary (QSub), but missed the Form 8869 filing deadline. The parent requested an extension under the regulatory election relief rules. The IRS found that the parent met the requirements for relief and gave it 60 days from the letter date to file Form 8869, with the intended effective date. A QSub is generally treated as part of its S corporation parent for federal tax purposes. The IRS did not decide whether the parent otherwise was a valid S corporation or the subsidiary a valid QSub.

Ruling snapshot

• Question: Could the parent file a late QSub election for its wholly owned subsidiary?
• Outcome: Approved: 60 days to file Form 8869 with the specified effective date.
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a)(4), 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200452023
Third Party Communication: None
Release Date: 12/24/2004
Date of Communication: Not Applicable
Index Number: 1361.05-00, 9100.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B01
In Re:
PLR-137049-04
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Date:
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September 14, 2004
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Legend

X = ------------------------------------------------------------------------------------
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Y = -------------
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State = ---------
D1 = ----------------
D2 = -----------------

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

This responds to your letter dated June 22, 2004, submitted on behalf of X, requesting an extension of time under ' 301.9100-1(c) of the Procedure and Administration Regulations to elect to treat Y as a qualified subchapter S subsidiary (QSub) for federal tax purposes.

Facts

According to the information submitted, X and Y were incorporated on D1 and D2, respectively, under the law of State. X made an election to be treated as an S corporation effective D1. On D1, Y became a wholly-owned subsidiary of X. X intended to treat Y as a QSub effective D1; however, X inadvertently failed to timely file the proper election.

Law and Analysis

Section 1362(a) provides that a small business corporation may elect to be an S corporation.

PLR-137049-04
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Section 1361(b)(3)(A) provides that a QSub shall not be treated as a separate corporation, and all assets, liabilities, and items of income, deduction, and credit of a QSub shall be treated as assets, liabilities, and such items (as the case may be) of the S corporation.

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.

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 a QSub 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. 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 Y as a QSub effective D1. A copy of this letter should be attached to the election and is included 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 a valid S corporation or whether Y 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.

Sincerely,

/s/ Heather C. Maloy

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

Enclosures:
Copy of this letter, Copy for §6110 purposes