PLR 200628009: More time granted for subsidiary S corporation election

Plain-English summary

An S corporation intended to elect qualified subchapter S subsidiary status for its wholly owned subsidiary but missed the filing deadline. The IRS found that the requirements for discretionary deadline relief were satisfied and gave the parent 60 days from the letter to file Form 8869, effective on the requested date. The parent had to attach the ruling to the election. The IRS did not decide whether the parent was a valid S corporation or the subsidiary otherwise qualified for that status.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200628009
Release Date: 7/14/2006
Index Numbers: 9100.22-00

• Person To Contact:
  ---------------------------- -----------------------------------------------------
  ------------- ---------
  -------------------------------- Telephone Number:
  ------------------------------ ---------------------
  ----------------------------- Refer Reply To:
  CC:PSI:2 – PLR-158014-05
  Date:
  March 22, 2006

Legend:

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

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

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

Dear -----------------------
This responds to a letter dated October 31, 2005, and subsequent correspondence, submitted on behalf of X, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to elect to treat a subsidiary as a qualified subchapter S subsidiary (QSub) under § 1361(b)(3)(B) of the Internal Revenue Code.

FACTS

The information submitted states that X is a corporation that has elected to be an S corporation. X intended to elect to treat Y, its wholly owned subsidiary, as a QSub, effective Date 1, but inadvertently failed to timely file the appropriate election.

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LAW AND ANALYSIS

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

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

Section 1361(b)(3)(B) defines the term "qualified subchapter S subsidiary" (QSub) as a domestic corporation which 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 1361(b)(3)(A) provides that a corporation which is 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 of the S corporation.

Section 1.1361-3(a) of the Income Tax Regulations provides the time and manner of making a 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 301.9100-1(c) gives the Commissioner discretion to grant reasonable extensions of time to make regulatory elections under the rules of §§ 301.9100-2 and 301.9100-3. Under § 301.9100-1(b), a regulatory election includes an election whose due date is prescribed by a regulation published in the Federal Register.

Section 301.9100-3 sets forth the standards that the Commissioner uses to determine whether to grant a discretionary extension of time. These standards indicate that the Commissioner should grant relief when the taxpayer provides evidence proving to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the Government.

CONCLUSION

Based solely on the facts and the representations submitted, we conclude that the requirements of § 301.9100-3 have been satisfied. As a result, X is granted an extension of time for 60 days from the date of this letter to file a Form 8869 to elect to treat Y as a QSub effective Date 1. A copy of this letter should be attached to the election.

Except as specifically set forth above, no opinion is expressed or implied as to the federal tax consequences of the transaction described above under any other

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provision of the Code. Specifically, no opinion is expressed concerning 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 on whose behalf it was requested.
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 X=s authorized representative.

Sincerely,

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

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