Parent granted more time to make a QSub election

Plain-English summary

The IRS granted an S corporation 120 additional days to elect to treat its wholly owned domestic subsidiary as a qualified subchapter S subsidiary. The parent had acquired all of the subsidiary's stock and intended to make the election effective on a redacted date, but inadvertently failed to file Form 8869. The extension is available under Treas. Reg. § 301.9100-3, and the election must be filed with the appropriate service center with a copy of the ruling attached. The IRS did not decide whether the parent is a valid S corporation or whether the subsidiary is otherwise eligible for QSub treatment.

Ruling snapshot

• Question: Could the S corporation receive an extension of time to elect QSub treatment for its wholly owned subsidiary?
• Outcome: Approved
• Key authorities: IRC §§ 1361, 1362, and 6110; Treas. Reg. §§ 1.1361-3 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201043006 Third Party Communication: None
Release Date: 10/29/2010 Date of Communication: Not Applicable
Index Number: 1361.05-00, 9100.00-00
Person To Contact:
------------------------------------ ----------------------, ID No. -----------------
---------------------------------------------- Telephone Number:
------------------------ ---------------------
------------------------------------------------ Refer Reply To:
CC:PSI:B01
PLR-105511-10
Date: July 22, 2010

Legend

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

A = ------------------------------------

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

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

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

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

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

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

    This responds to a letter dated January 29, 2010, 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 elected to be treated as an S corporation

effective D1. A was incorporated under the laws of State and elected to be an S
corporation effective D2. X represents that it acquired all of A’s stock and intended to
elect to treat A as a QSub effective D3. However, due to inadvertence, X failed to file
Form 8869, Qualified Subchapter S Subsidiary Election.

PLR-105511-10 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 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 (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 120 days from the date of this letter to elect to treat A 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

PLR-105511-10 3

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,

                                    Associate Chief Counsel
                                    (Passthroughs & Special Industries)



                               By: Faith P. Colson
                                   Faith P. Colson
                                   Senior Counsel, Branch 2
                                   (Passthroughs & Special Industries)

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