PLR 200815012: S corporation gets time to elect QSub treatment for acquired company

Plain-English summary

An S corporation acquired all the stock of another corporation and intended to elect qualified subchapter S subsidiary (QSub) treatment from the acquisition date. It relied on tax advisers to file Form 8869, but neither the company nor the IRS had a record of the form. The IRS found that the requirements for discretionary relief were met. It gave the parent 60 days from the ruling date to file a completed Form 8869 and a copy of the letter; the election would then be treated as timely for the acquisition date. The IRS did not decide whether the parent qualified as a small business corporation or whether the subsidiary was eligible to be a QSub.

Ruling snapshot

• Question: Could the parent make a late QSub election effective on the subsidiary's acquisition date?
• Outcome: Approved if Form 8869 was filed within 60 days.
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200815012
Release Date: 4/11/2008
Index Number: 1361.05-00, 9100.22-00

Person To Contact:
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Telephone Number:
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---------------------------------------------------- Refer Reply To:
CC:PSI:2 – PLR-118168-07
Date:
December 18, 2007

LEGEND:

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

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

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

Date 3 = -------------------

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

This letter responds to a letter dated April 6, 2007, submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations for X to elect to treat Y as a qualified subchapter S subsidiary (QSub).

The information submitted states that X was incorporated under the laws of State on Date 1 and elected to be an S corporation effective Date 2. On Date 3, X acquired all of the stock of Y. X intended to make a QSub election for Y and relied upon its tax advisors to file the Form 8869, Qualified Subchapter S Subsidiary Election. However, neither X nor the Service has a record of a Form 8869 being filed with respect to Y.
PLR-118168-07
2

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, which is not an ineligible corporation, in which 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 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.

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. As a result, X is granted an extension of time of 60 days from the date of this letter to elect to treat Y as a QSub effective Date 3. Accordingly, provided that X makes a QSub election for Y by filing a completed Form 8869 effective Date 3, along with a copy of this letter, with the appropriate service center within 60 days from the date of this letter, then such election will be treated as timely made for Date 3.

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. In particular, no opinion is expressed concerning whether X is or was a small business corporation or whether Y is or was eligible to be a QSub.
PLR-118168-07
3

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Internal Revenue Code provides that it may not be used or cited as precedent.

Pursuant to 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 and Special Industries)

Enclosures (2)

Copy of this letter
Copy for section 6110 purposes