PLR 200837008: S corporation obtained relief for an untimely QSub filing

Plain-English summary

An S corporation wanted its wholly owned subsidiary treated as a QSub beginning on the parent's S election date but missed the filing deadline. It requested an extension under the regulatory-election relief rules. The IRS found those requirements satisfied and allowed 60 days from the letter date to submit Form 8869. The subsidiary's election could take effect on the intended redacted date, and the parent had to attach the ruling. The IRS did not determine whether the parent was a valid S corporation or the subsidiary was otherwise eligible for QSub treatment.

Ruling snapshot

• Question: Could the parent make its subsidiary's QSub election after the normal filing deadline?
• Outcome: Approved
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200837008
Third Party Communication: None
Release Date: 9/12/2008
Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.00-00, 1361.05-00
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Telephone Number:
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---------------------------------------------------- Refer Reply To:
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PLR-105829-08
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Date:
May 30, 2008

Legend:

X = ----------------------------------------------------
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A = ------------------------------------- ----------------
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State = -------------

D = ----------------------

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

This responds to the letter dated July 26, 2007, and related correspondence, submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to make a late election on behalf of A to be treated as a qualified subchapter S corporation (QSub) under § 1361(b)(3) of the Internal Revenue Code (Code).

FACTS

The information submitted states that X was incorporated under the laws of State. X elected to be treated as an S corporation for federal tax purposes, effective D. X intended its wholly owned subsidiary, A, to be treated as a QSub for federal tax purposes, effective D, however, X did not timely file the election.
PLR-105829-08
2

LAW AND ANALYSIS

Section 1361(b)(3)(A) provides that, except as provided in regulations prescribed by the Secretary, for purposes of Title 26, (i) a corporation which is a QSub shall not be treated as a separate corporation, and (ii) 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) provides that, for purposes of § 1361(b)(3), the term “qualified subchapter S subsidiary” means any domestic corporation which is not an ineligible corporation (as defined in § 1361(b)(2)), if (i) 100 percent of the stock of such corporation is held by the S corporation, and (ii) the S corporation elects to treat such corporation as a QSub.

A taxpayer makes a QSub election with respect to a subsidiary by filing Form 8869, Qualified Subchapter S 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 form is filed if no date is specified. The effective date specified on the 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 1.1361-3(a)(6) provides that an extension of time to make a QSub election may be available under the procedures applicable under §§ 301.9100-1 and 301.9100-3.

Under § 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 a regulation 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 301.9100-2 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 § 301.9100-2. 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.
PLR-105829-08
3

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that the requirements of § 301.9100-3 are satisfied. As a result, X is granted an extension of time of 60 days from the date of this letter to elect to treat A as a QSub, effective D. The election should be made by filing Form 8869 with the appropriate service center. A copy of this letter should be attached to the election.

Except as specifically set forth above, we express or imply no opinion concerning the federal tax consequences of the facts described above under any other provision of the Code. Specifically, we express or imply no opinion concerning whether X is a valid S corporation, or whether A is eligible to be a QSub.

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 mailed to your authorized representative.

Sincerely,

William P. O’Shea
William P. O’Shea
Associate Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)

Copy of this letter
Copy for ' 6110 purposes

cc: