PLR 201001006: IRS grants more time to elect QSub status for a wholly owned subsidiary

Plain-English summary

An S corporation asked for more time to elect to treat its wholly owned subsidiary as a qualified subchapter S subsidiary, or QSub. The parent intended to make the election but inadvertently failed to file Form 8869. The IRS found that the requirements for relief under Treas. Reg. § 301.9100-3 were satisfied and granted a 60-day extension from the date of the letter, with retroactive effectiveness to the acquisition date. The ruling did not express an opinion on whether the parent was a valid S corporation or whether the subsidiary was otherwise eligible to be a QSub.

Ruling snapshot

• Question: Could the S corporation receive an extension of time to make a retroactive QSub election for its wholly owned subsidiary?
• Outcome: Approved
• Key authorities: IRC §§ 1361(b)(3) and 1362(a); Treas. Reg. §§ 301.9100-1 through 301.9100-3 and 1.1361-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201001006
Third Party Communication: None
Release Date: 1/8/2010
Date of Communication: Not Applicable
Index Number: 9100.00-00, 1361.05-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:PSI:B02
PLR-116669-09
Date:
September 04, 2009

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

D1 = --------------------------

D2 = ----------------------

D3 = -----------------
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D4 = ----------------------

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

This responds to the letter dated March 20, 2009, and subsequent correspondence, submitted on behalf of X, requesting relief pursuant to § 301.9100-3 of the Procedure and Administration Regulations that X be granted an extension of time to elect to treat A as a qualified subchapter S subsidiary (QSub) under § 1361(b)(3) of the Internal Revenue Code (Code).

The information submitted states that X was incorporated under the laws of State on D1 and elected to be treated as an S corporation effective D2. A was incorporated on D3 under the laws of State, and all of its stock was acquired by X on D4. X represents that it intended to elect to treat A, its wholly owned subsidiary, as a QSub effective D4. However, due to inadvertence, X failed to file Form 8869, Qualified Subchapter S Subsidiary Election.
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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 as a qualified subchapter S subsidiary. Section 1.1361-3(a)(4) provides that an election 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 Election.

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 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 on the facts submitted and representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Accordingly, 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 D4. The election should be made by filing Form 8869 with the appropriate service center, and a copy of this letter should be attached to the election. A copy is enclosed for that purpose.

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
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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 X’s authorized representative.

Sincerely,

Curt G. Wilson
Deputy Associate Chief Counsel
(Passthroughs & Special Industries)

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