PLR 200520002: S corporation gets more time to elect subsidiary's QSub status

Plain-English summary

An S corporation bought all the stock of another corporation and intended to treat the subsidiary as a qualified subchapter S subsidiary, or QSub. It inadvertently failed to file the election. The IRS concluded that the requirements for discretionary filing relief were met and gave the parent 60 days to file Form 8869 with the intended effective date. The ruling did not decide whether the parent was a valid S corporation or the subsidiary otherwise qualified as a QSub.

Ruling snapshot

• Question: Could the parent make a late QSub election for its wholly owned subsidiary?
• Outcome: A 60 day extension to file Form 8869 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: 200520002
Release Date: 5/20/2005
Index Number: 9100.00-00

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Person To Contact:
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Refer Reply To:
In Re: CC:PSI:B01 – PLR-114171-04
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February 14, 2005
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Legend

X = -----------------------------------------
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Y = --------------------
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Date 1 = -------------------

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

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

This responds to a letter dated March 8, 2004, written on behalf of X, requesting a ruling that the Service grant X an extension of time under section 301.9100-3 of the Procedure and Administration Regulations to elect to treat Y as a qualified subchapter S subsidiary (QSub) effective Date 2 under section 1361(b)(3) of the Internal Revenue Code.

FACTS

According to the information submitted, X is a corporation that elected to be treated as an S corporation effective Date 1. Y became a wholly-owned subsidiary of X when X acquired all of the stock of Y. X intended to treat Y as a QSub but inadvertently failed to file the proper election.

LAW AND ANALYSIS

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Section 1362(a) provides that, except as provided in section 1362(g), a small business corporation may elect, in accordance with the provisions of section 1362, to be an S corporation.

Section 1361(a)(1) generally provides that the term “S corporation” means, with respect to any taxable year, a small business corporation for which an election under section 1362(a) is in effect for such year.

Section 1361(b)(3)(B) defines a QSub as any 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) of the Income Tax Regulations provides the time and manner for making the QSub election. 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) 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 form cannot be more than two (2) months and fifteen days prior to the date of filing and cannot be more than twelve (12) months after the date of filing.

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 E, G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as including an election whose deadline is prescribed by 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). 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 301.9100-2 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 information submitted and the representations made, we conclude that the requirements of section 301.9100-3 have been satisfied. X is granted

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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 Date 2. A copy of this letter should be attached to the election.

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

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.

Pursuant to the power of attorney on file with this office, we are sending a copy of this letter to X and X’s second authorized representative.

Sincerely,

/s/ Heather C Maloy

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

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

cc: