PLR 1031002: IRS granted more time to make QSub elections

Plain-English summary

The IRS granted a corporation an extension of time to file Forms 8869 for seven subsidiaries and elect to treat them as qualified subchapter S subsidiaries. The corporation intended the elections to be effective on a specified date, but failed to file the forms on time. The IRS concluded that the requirements for relief under IRC § 301.9100 were satisfied and granted 120 days from the letter date to file the forms. The ruling letter had to be attached to each Form 8869.

Ruling snapshot

• Question: Could the corporation receive additional time to make QSub elections for its subsidiaries?
• Outcome: Approved
• Key authorities: IRC §§ 1361(b)(3)(B) and 1362(a); Treas. Reg. § 1.1361-3(a)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201031002 Third Party Communication: None
Release Date: 8/6/2010 Date of Communication: Not Applicable
Index Number: 9100.00-00, 1361.05-00
Person To Contact:
------------------ --------------, ID No. -------------
------------- Telephone Number:
-------------------------------------- ---------------------
------------------------ Refer Reply To:
-------------------------------------------- CC:PSI:B02
PLR-104558-10
Date:
April 23, 2010

Legend

X = ---------------------------------------

Sub 1 = --------------------------------------

Sub 2 = ----------------------------

Sub 3 = ------------------------------

Sub 4 = ------------------------------

Sub 5 = --------------------------------

Sub 6 = ------------------------------

Sub 7 = ----------------------------------------------

State = ---------

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

Date 2 = ----------------------
PLR-104558-10 2

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

  This responds to a letter dated January 26, 2010, submitted on behalf of X,

requesting that the Service grant X an extension of time under § 301.9100-1(c) of the
Procedure and Administration Regulations to elect to treat Sub 1, Sub 2, Sub 3, Sub 4,
Sub 5, Sub 6, and Sub 7 (“the Subsidiaries”) as qualified subchapter S subsidiaries
(QSubs) for federal tax purposes.

   The information submitted states that X was formed under the laws of State on

Date 1. X had intended to elect to treat each of the Subsidiaries as QSubs effective as
of Date 2. However, due to inadvertence, X failed to timely file Forms 8869, Qualified
Subchapter S Subsidiary Election, for any of the Subsidiaries.

    X represents that X, the Subsidiaries, and X’s shareholders have filed tax returns

for all of the relevant tax years that are not inconsistent with the income taxation of the
Subsidiaries as QSubs from Date 2.

   Section 1362(a) generally provides that a small business corporation may elect

to be an 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 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

PLR-104558-10 3

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 120 days from the date of this letter to file Forms 8869
with the appropriate service center to elect to treat the Subsidiaries as QSubs effective
Date 2. A copy of this letter should be attached to each Form 8869 for the Subsidiaries.
Seven copies are 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 Code. Specifically, we express no opinion regarding whether X qualifies as a
small business corporation under § 1361, or whether the Subsidiaries otherwise meet
the definition of QSub 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. 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,


                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)


                                By:      ________________________________
                                         Bradford R. Poston
                                         Senior Counsel, Branch 2
                                         Office of Associate Chief Counsel
                                         (Passthroughs & Special Industries)

Enclosures (8)
Seven copies of this letter
Copy for § 6110 purposes