PLR 201147011: IRS grants extra time for a QSub election

Plain-English summary

An S corporation acquired all of the stock of another S corporation and intended to treat the subsidiary as a qualified subchapter S subsidiary. The parent did not timely file Form 8869, the QSub election form. The IRS found that the requirements for relief were satisfied and granted 120 days from the ruling letter to make the election effective on the acquisition date. The ruling did not decide whether the parent was otherwise a valid S corporation or whether the subsidiary was eligible to be a QSub.

Ruling snapshot

• Question: May the parent make a late QSub election effective on the date it acquired the subsidiary?
• Outcome: Approved, subject to filing Form 8869 within 120 days.
• Key authorities: IRC § 1361(b)(3); Treas. Reg. § 1.1361-3; Treas. Reg. §§ 301.9100-1, 301.9100-2, and 301.9100-3; IRC § 6110(k)(3).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201147011
Third Party Communication: None
Release Date: 11/25/2011
Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 1361.05-00
Person To Contact:
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Refer Reply To:
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CC:PSI:B03
PLR-111776-11
Date:
August 02, 2011

LEGEND:

Company = -----------------------------------------------------------------------------------------------
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Subsidiary = -----------------------------------------------------------------------------------------------
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State = -------------

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

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

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

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

This letter responds to a letter dated March 14, 2011, submitted on behalf of Company requesting an extension of time under §§ 301.9100-1 and 301.9100-3 of the Procedure and Administration Regulations for Company to elect to treat Subsidiary as a qualified subchapter S subsidiary (QSub) under § 1361(b)(3) of the Internal Revenue Code (Code).

FACTS:

According to the information submitted, Company is a State corporation, which elected to be an S corporation effective D2. Subsidiary is also a State corporation, which elected to be an S corporation effective D1. On D3, Company acquired all of the outstanding stock of Subsidiary and intended to treat Subsidiary as a QSub effective
PLR-111776-11
2

D3. However, Company failed to timely file Form 8869, Qualified Subchapter S Subsidiary Election.

LAW AND ANALYSIS:

Section 1361(b)(3)(A) provides that except as provided in regulations prescribed by the Secretary, for purposes of Title 26— (i) a corporation which is a QSub shall not be treated as a separate corporation, and (ii) 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 the term “qualified subchapter S subsidiary” as a domestic corporation which is not an ineligible corporation (as defined in § 1361(b)(2)), 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 for a subsidiary by filing 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 1.1361-3(a)(6) provides that an extension of time to make a QSub election may be available under §§ 301.9100-1 and 301.9100-3.

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 six 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 a regulatory election to include an election whose due date is prescribed by a regulation published in the Federal Register.

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.

Section 301.9100-3 provides that requests for relief subject to § 301.9100-3 will be granted when the taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.
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CONCLUSION

Based on the facts submitted and representations made, we conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. Consequently, Company is granted an extension of time of one hundred twenty (120) days from the date of this letter to elect to treat Subsidiary as a QSub effective D3. The election should be made by filing Form 8869 with the appropriate service center. A copy of this letter should be attached to the election.

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 Company is a valid S corporation, or whether Subsidiary is eligible to be a QSub.

Under a power of attorney on file with this office, we are sending a copy of this letter to Company's authorized representative.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the ruling request, it is subject to verification on examination.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By:
Mary Beth Carchia
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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