PLR 1036003: Late S election and QSub election relief granted

Plain-English summary

The IRS granted a corporation relief to make a late S corporation election and an additional 60-day extension to elect to treat its wholly owned subsidiary as a qualified subchapter S subsidiary. The corporation intended to make both elections, but neither Form 2553 nor Form 8869 was timely filed because of inadvertence. The IRS concluded that the corporation would be recognized as an S corporation as of its intended effective date, assuming it otherwise qualified. It also granted the extension for the QSub election, effective as of the date the corporation acquired the subsidiary's stock. Each form had to be filed with a copy of the ruling within 60 days of the letter. The IRS did not opine on the corporation's independent eligibility or the subsidiary's eligibility as a QSub.

Ruling snapshot

• Question: May a corporation make late S corporation and QSub elections after failing to timely file Forms 2553 and 8869?
• Outcome: Approved
• Key authorities: IRC §§ 1361 and 1362; Treas. Reg. § 1.1361-3; Treas. Reg. §§ 301.9100-1 through -3

Full text (IRS public release)

• Internal Revenue Service Department of the Treasury
  Washington, DC 20224

Number: 201036003 Third Party Communication: None
Release Date: 9/10/2010 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1361.05-00, 1362.00-00, ----------------------, ID No. -----------------
Telephone Number:
9100.00-00
--------------------
Refer Reply To:
--------------------------------- CC:PSI:B01
------------------------------ PLR-107684-10
------------------------------- Date:
---------------------- June 02, 2010

Legend

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

Y = -----------------------------------------------

State = ----------

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

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

D3 = ----------------------

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

   This responds to the letter dated December 31, 2009, and subsequent

information, submitted on behalf of X, requesting relief under § 1362(b)(5) of the Internal
Revenue Code (Code) for X to elect to be an S corporation and 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 Y as a qualified subchapter S subsidiary
(QSub) under § 1361(b)(3) of the Code.

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

on D1. X acquired all of the stock of Y on D3. X represents that it intended to elect to
be treated as an S corporation for federal tax purposes on D2 and then elect to treat Y,
its wholly owned subsidiary, as a QSub effective D3. However, due to inadvertence,
PLR-107684-10 2

neither Form 2553, Election by a Small Business Corporation, nor Form 8869, Qualified
Subchapter S Subsidiary Election, was timely filed.

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

to be an S corporation.

    Section 1362(b) provides that if an S election is made within the first two and

one-half months of a corporation’s taxable year, then that corporation will be treated as
an S corporation for the year in which the election is made. If an election is made after
the first two and one-half months of a corporation’s taxable year, then the corporation
will generally not be treated as an S corporation until the following taxable year.

    Section 1362(b)(5) provides that if no election is made pursuant to § 1362(a), or

if the election is made after the date prescribed for making such an election, and the
Secretary determines reasonable cause existed for the failure to timely make the
election, then the Secretary can treat such an election as timely made for that taxable
year and effective as of the first day of that taxable year.

  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 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 provides the time and

manner for 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) 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
PLR-107684-10 3

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 and the representations made, and provided that X

otherwise qualifies as an S corporation, we conclude that X will be recognized as an S
corporation effective D2. A Form 2553 along with a copy of this letter must be
forwarded to the appropriate service center within 60 days from the date of this letter.

   In addition, based solely on the facts submitted and the 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 Y
as a QSub, effective D3. 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
the Code. Specifically, we express or imply no opinion concerning whether X is, in fact,
an S corporation, or whether Y is eligible to be a QSub.

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

the Code 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 sent to your authorized representative.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)


                               By: David R. Haglund
                                   David R. Haglund
                                   Chief, Branch 1
                                   (Passthroughs & Special Industries)

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

cc: