PLR 1216015: IRS grants more time to elect qualified subchapter S subsidiary status

Plain-English summary

An S corporation acquired a wholly owned subsidiary and intended to elect qualified subchapter S subsidiary status for that subsidiary, but it did not timely file Form 8869. The IRS found that the requirements for relief under Treas. Reg. § 301.9100-3 were satisfied and granted 120 additional days from the date of the letter to make the election effective on the redacted acquisition date. The ruling required a copy of the letter to be attached to Form 8869. It did not decide whether the parent was a small business corporation or whether the subsidiary otherwise qualified as a QSub.

Ruling snapshot

• Question: May the S corporation make a late QSub election for its wholly owned subsidiary?
• Outcome: Approved, subject to filing Form 8869 within 120 days
• Key authorities: IRC §§ 1361(b)(3) and 1362(a); 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: 201216015 Third Party Communication: None
Release Date: 4/20/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.00-00, 1361.05-00 --------------------, ID No. -----------------
Telephone Number:
---------------------
---------------------------------- Refer Reply To:
------------------------------ CC:PSI:B2
---------------------------------------- PLR-133545-11
-------------------------------- Date:
December 07, 2011

Legend

X: ------------------------------

Y: ----------------------

State: ----------------------

Date 1: ------------------

Date 2: -------------------------

Date 3: --------------------------

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

     This responds to a letter dated August 8, 2011, and subsequent correspondence

submitted on behalf of X, requesting that the Service grant X an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations to make a late election
to treat Y as a qualified subchapter S subsidiary (QSub) under 1361(b)(3) of the Code.

   The facts submitted and representations made are summarized as follows. X

was formed on Date 1 under the laws of State and elected to be treated as an S
corporation effective Date 1. Y elected to be treated as an S corporation effective Date

2. X acquired Y on Date 3 and had intended to elect to treat Y as a QSub effective
   PLR-133545-11 2

Date 3. However, X inadvertently failed to timely file a Form 8869, Qualified
Subchapter S Subsidiary Election for Y.

   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 QSub.

 Section 1.1361-3(a) of the Income Tax Regulations prescribes the time and

manner for making an election to be classified as a QSub.

     Section 1.1361-3(a)(4) provides that an election to treat an eligible subsidiary as

a QSub 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.

   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

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 information submitted and the representations made, we

conclude that the requirements of § 301.9100-3 have been satisfied. As a result, X is
granted an extension of time of 120 days from the date of this letter to file a Form 8869
with the appropriate service center to elect to treat Y as a QSub effective Date 3. A
copy of this letter should be attached to the Form 8869. A copy is enclosed for that
purpose.
PLR-133545-11 3

   Except as specifically set forth above, no opinion is expressed concerning the

federal tax consequences of the facts described above 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 Y is eligible to be a 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, copies of this letter are

being sent to X’s authorized representatives.

                                           Sincerely,

                                           Associate Chief Counsel
                                           (Passthroughs and Special Industries)



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

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

cc: