PLR 200809019: S corporation receives more time for subsidiary election

Plain-English summary

An S corporation formed a wholly owned subsidiary and intended to elect qualified subchapter S subsidiary status from the subsidiary's formation date. It missed the deadline to file Form 8869, although it represented that both companies' returns had treated the subsidiary as a QSub. The IRS found that the requirements for discretionary late election relief were met. It gave the parent 60 days to file Form 8869 with a copy of the ruling, effective on the redacted formation date. The IRS did not decide whether the parent or subsidiary otherwise met the requirements for that tax treatment.

Ruling snapshot

• Question: Could the S corporation file a late QSub election effective when its subsidiary was formed?
• Outcome: Yes, if it files Form 8869 within 60 days.
• 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

Third Party Communication: None
Number: 200809019
Date of Communication: Not Applicable
Release Date: 2/29/2008
Person To Contact:
Index Number: 1361.05-00, 9100.00-00
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Telephone Number:
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Refer Reply To:
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CC:PSI:B02
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PLR-147375-07
Date:
-------------------------------------------- November 27, 2007

Legend

X = ----------------------------
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Y = -------------------------------------------------------
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State = ---------

Date1 = -----------------

Date2 = ----------------------

Date3 = ------------------

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

This responds to a letter dated October 16, 2007, and subsequent correspondence, submitted on behalf of X by its authorized representative, requesting relief pursuant to § 301.9100-3(a) of the Procedure and Administration Regulations that X be granted an extension of time to elect to treat Y as a qualified subchapter S subsidiary (QSub) under § 1361(b)(3) of the Internal Revenue Code.

The information submitted states that X was incorporated under the laws of State on Date1, and elected to be treated as an S corporation effective Date2. On Date3, Y was incorporated under the laws of State as a wholly owned subsidiary of X. X had intended to elect to treat Y as a QSub effective as of the date of formation of Y.

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However, due to inadvertence, X failed to timely file Form 8869, Qualified Subchapter S Subsidiary Election.

X represents that X and Y have filed tax returns for all of the relevant tax years consistent with the tax treatment of Y as a QSub from the date of formation of Y.

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

Section 1361(b)(3)(B) defines a qualified subchapter S subsidiary as a domestic corporation which is not an ineligible corporation, if 100 percent of the stock of the corporation is owned by the S corporation, and the S corporation elects to treat the corporation as a qualified subchapter S subsidiary.

Section 1.1361-3(a) of the Income Tax Regulations prescribes the time and manner for making an election to be classified a qualified subchapter S subsidiary. Section 1.1361-3(a)(4) provides that an election to treat an eligible subsidiary as a qualified subchapter S subsidiary may be effective up to two months and 15 days prior to the date the election is filed or not more than 12 months after the election is filed. The proper form for making the election is Form 8869, Qualified Subchapter S Subsidiary.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time to make a regulatory election, or a statutory election (but no more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines the term “regulatory election” as an election whose due date is prescribed by a regulation published in the Federal Register or a revenue ruling, revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Section 301.9100-2 provides the rules governing automatic extensions of time for making certain elections.

Section 301.9100-3 provides the standards the Commissioner will use to determine whether to grant an extension of time for regulatory elections that do not meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will be granted when the taxpayer provides evidence to establish to the satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good faith, and that (2) granting relief will not prejudice the interests of the Government.

Based solely upon the information submitted and the representations made, we conclude that the requirements of § 301.9100 have been satisfied. Accordingly, X is granted an extension of time of 60 days from the date of this letter to file Form 8869, Qualified Subchapter S Subsidiary Election, with the appropriate service center to elect

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to treat Y as a qualified subchapter S subsidiary effective Date3. A copy of this letter should be attached to the Form 8869. A copy is enclosed for that purpose.

Except for the specific rulings above, we express or imply no opinion concerning the federal income tax consequences of the facts of this case under any other provision of the Internal Revenue Code. Specifically, we express no opinion regarding whether X otherwise qualifies as a small business corporation under § 1361, or whether Y otherwise meets the definition of qualified subchapter S subsidiary under § 1361(b)(3)(B).

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 X’s authorized representative.

Sincerely,

William P. O'Shea
Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: