PLR 1103030: Parent receives more time to make a QSub election for a wholly owned subsidiary

Plain-English summary

An S corporation parent asked for more time to elect to treat its wholly owned subsidiary as a qualified subchapter S subsidiary. The parent had contributed the subsidiary’s stock to itself but inadvertently failed to file the required election on time. The IRS granted 120 days from the ruling date to file Form 8869, with the election effective on the specified date, subject to filing the subsidiary’s final return for the relevant year. The ruling did not address whether the parent was eligible to be an S corporation or whether the subsidiary was otherwise eligible to be a QSub.

Ruling snapshot

• Question: Could an S corporation receive more time to elect QSub treatment for its wholly owned subsidiary?
• Outcome: Approved
• Key authorities: IRC § 1361; Treas. Reg. §§ 1.1361-3 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201103030 Third Party Communication: None
Release Date: 1/21/2011 Date of Communication: Not Applicable
Index Number: 1361.05-00, 9100.31-00
Person To Contact:
------------------------------------ ---------------------, ID No. -----------------
-------------------------------------------------------- Telephone Number:
------------------------------------------------- ---------------------
---------------------------------- Refer Reply To:
CC:PSI:03
PLR-132013-10
Date:
September 24, 2010

                                                 Legend

Parent = -----------------------------------------

Subsidiary = -----------------------------------------------------

Date2 = --------------------------

Shareholders = -----------------------------

-----------------------------------------------------------

-------------------------------------------------------------

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

  This letter responds to your letter dated July 19, 2010, and subsequent

correspondence, submitted on behalf of Parent, requesting an extension of time under
§ 301.9100-1(c) of the Procedure and Administration Regulations to elect to treat
Subsidiary as a qualified subchapter S subsidiary (QSub) for federal tax purposes.

PLR-132013-10 2

                                       Facts

   Parent was organized on Date2 under the laws of State and elected under

§ 1362(a) of the Internal Revenue Code to be an S corporation effective on Date2.
Shareholders held all of the stock of Parent on Date2. On Date2, the Shareholders,
who also owned all of the stock of Subsidiary, an S corporation, contributed all of their
shares in Subsidiary to Parent as additional paid in capital. Parent intended to make a
QSub election for Subsidiary, effective Date2. However, Parent inadvertently failed to
timely file the proper election.

                                 Law and Analysis

    Section 1361(a)(1) provides that the term “S corporation” means, with respect to

any tax year, a small business corporation for which an election under § 1362(a) is in
effect for such 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 that is not an

ineligible corporation, if 100 percent of the stock of the corporation is owned by an S
corporation, and the S corporation elects to treat the corporation as a QSub.

   Section 1.1361-3(a) provides that a taxpayer makes a QSub election with respect

to a subsidiary by filing a Form 8869, Qualified Subchapter S Subsidiary Election, with
the appropriate service center.

   Section 1.1361-3(a)(4) provides that a QSub election will be effective on the date

specified on the election form or on the date the election is filed if no date is specified.
The effective date specified on the election form cannot be more than two months and
15 days prior to the date of filing.

   Section 1.1361-3(a)(6) provides that an extension of time to make a QSub

election may be available under the procedures applicable under §§ 301.9100-1 and
301.9100-3.

   Section 301.9100-1(c) provides that the Commissioner has discretion to grant a

reasonable extension of time under the rules set forth in § 301.9100-2 and § 301.9100-3
to make regulatory elections. Section 301.9100-1(b) defines a regulatory election as an
election with a due date prescribed by a regulation published in the Federal Register, or
a revenue ruling, revenue procedure, notice, or announcement published in the Internal
Revenue Bulletin.

PLR-132013-10 3

  Section 301.9100-3(a) provides that requests for relief under § 301.9100-3 will be

granted when the taxpayer provides evidence to establish that the taxpayer acted
reasonably and in good faith, and that granting relief will not prejudice the interests of
the Government.

                                     Conclusion

    Based solely on the facts submitted and the representations made, we conclude

that Parent has satisfied the requirements of §§ 301.9100-1 and §§ 301.9100-3. As a
result, Parent is granted an extension of time of 120 days from the date of this letter to
file a Form 8869 to elect to treat Subsidiary as a QSub effective Date2. This ruling is
contingent on Subsidiary filing a final income tax return for its taxable year ending on
Date1. See § 1.1361-4(b)(3)(ii).

   A copy of this letter must be attached to any QSub election and any income tax

return to which it is relevant. Alternatively, taxpayers filing their returns electronically
may satisfy this requirement by attaching a statement to their return that provides the
date and control number of the letter ruling.

   Except for the specific rulings above, no opinion is expressed or implied

concerning the tax consequences of this case under any other provision of the Code.
Specifically, no opinion is expressed or implied regarding Parent’s eligibility to be an S
corporation or Subsidiary’s eligibility to be a QSub.

  In accordance with a power of attorney on file with this office, we are sending a

copy of this letter to your authorized representatives.

  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.

  The rulings contained in this letter are based upon information and

representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party.

PLR-132013-10 4

    While this office has not verified any of the material submitted in support of the

request for rulings, it is subject to verification on examination.

                                  Sincerely,

                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)


                                     /s/
                           By:    _____________________________
                                  James A. Quinn
                                  Senior Counsel, Branch 3
                                  Office of Associate Chief Counsel
                                  Passthroughs & Special Industries

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