PLR 1027042: S corporation granted more time to elect qualified subchapter S subsidiary status

Plain-English summary

The IRS granted an S corporation 60 days to file Forms 8869 and make qualified subchapter S subsidiary elections for three subsidiaries. The corporation had intended the elections to be effective on an earlier date, but the forms were not timely filed. The IRS concluded that the requirements for discretionary relief were satisfied because the taxpayer acted reasonably and in good faith and relief would not prejudice the government. The elections would be treated as timely if the completed forms were filed with the appropriate service center within 60 days of the letter.

Ruling snapshot

• Question: May the S corporation receive an extension of time to elect QSub status for three subsidiaries?
• Outcome: approved
• Key authorities: IRC § 1361; Treas. Reg. §§ 1.1361-3 and 301.9100-3; Forms 8869

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201027042 Third Party Communication: None
Release Date: 7/9/2010 Date of Communication: Not Applicable
Index Number: 1362.01-03, 9100-22.00
Person To Contact:
------------------------------------------ ------------------------ -------------------
------------------------------- Telephone Number:
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-------------------------------- Refer Reply To:
CC:PSI:B02
PLR-153182-09
Date:
March 3, 2010

Legend

A = ------------------------------------------------------------------------------------------------------
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X = ------------------------------------------------------------------------------------------------------
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Y = ------------------------------------------------------------------------------------------------------
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Z = ------------------------------------------------------------------------------------------------------
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State = --------------

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

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

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

  This responds to a letter dated November 4, 2009, and subsequent

correspondence submitted on behalf of A by its authorized representative, requesting
an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations for A to treat X, Y, and Z as qualified subchapter S subsidiaries (QSubs).

  The information submitted states that A was formed in State on D1. A filed a

Form 2553, Election by a Small Business Corporation, effective D1. In addition, A
represents that it intended to make a QSub election for X, Y, and Z, effective D2.
PLR-153182-09 2

However, Forms 8869, Qualified Subchapter S Subsidiary Election, were not timely filed
for X, Y and Z.

  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, if 100 percent of the stock of the corporation is held 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 with the appropriate service center. Section 1.1361-
3(a)(4) provides that a QSub election cannot be effective more than two months and 15
days prior to the date of filing.

  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 with 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 facts submitted and the representations made, we conclude

that A has satisfied the requirements of sections 301.9100-1 and 301.9100-3. As a
result, A is granted an extension of time of 60 days from the date of this letter to elect to
treat X, Y, and Z as QSubs effective D2. Accordingly, provided that A makes a QSub
election for X, Y and Z by filing completed Forms 8869 effective D2 with the appropriate
service center within 60 days from the date of this letter, then such elections will be
treated as timely made for D2. A copy of this letter should be attached to the Forms
8869.

   Except as specifically set forth above, no opinion is expressed concerning the

federal tax consequences of the facts described above under any other provision of the
Code, including whether X, Y and Z are eligible QSubs.

  This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.
PLR-153182-09 3

   Pursuant to a power of attorney on file with this office, a copy of this letter is

being sent to X’s authorized representative.

                                    Sincerely,


                                    Curt G. Wilson
                                    Associate Chief Counsel
                                    Office of the Associate Chief Counsel
                                    (Passthroughs & Special Industries)

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