PLR 1237015: IRS grants late QSub election relief

Plain-English summary

The IRS granted a corporation 120 days to make late elections treating four wholly owned subsidiaries as qualified subchapter S subsidiaries. The corporation had acquired the subsidiaries, failed to timely file Forms 8869, and represented that its tax returns had been filed as if the elections were already effective. Based on the submitted facts and representations, the IRS found that the corporation satisfied the requirements for relief under the section 301.9100 regulations. The ruling did not determine whether the parent was a valid S corporation or whether the subsidiaries were otherwise eligible QSubs.

Ruling snapshot

• Question: Could the corporation receive an extension to make QSub elections effective on the stated date?
• 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: 201237015 Third Party Communication: None
Release Date: 9/14/2012 Date of Communication: Not Applicable
Index Number: 1361.00-00, 1361.05-00,
9100.00-00 Person To Contact:
---------------------, ID No. -----------------
-------------------- Telephone Number:
------------------------ -------------------
--------------------------- Refer Reply To:
------------------------------------ CC:PSI:B03
PLR-152555-11
Date:
June 15, 2012

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

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

B = -----------------------------------------------------------------------------------------------------
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C = -----------------------------------------------------------------------------------------------------
------------------------

D = -----------------------------------------------------------------------------------------------------
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State = ----------

Date = ------------------
1
Date = --------------------------
2
Date = ---------------------
3

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

  This letter responds to a letter dated December 20, 2011, and subsequent

correspondence, submitted on behalf of X by its authorized representatives, requesting
an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations for X to elect to treat A, B, C, and D as qualified subchapter S subsidiaries
(QSubs) under § 1361(b)(3) of the Internal Revenue Code (Code).
PLR-152555-11 2

                                     FACTS

   According to the information submitted, X was incorporated under the laws of

State and elected to be an S corporation effective Date 1. On Date 2, X entered into a
purchase agreement to acquire all of the stock of A and B, and, through those entities,
their wholly owned subsidiaries C and D effective Date 3. X failed to timely file Forms
8869, Qualified Subchapter S Subsidiary Election. X represents that all income tax
returns of X and its shareholders have been filed as if the Qsub elections were effective
as of Date 3.

                              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.
PLR-152555-11 3

   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.

                                  CONCLUSION

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

X has satisfied the requirements of § 301.9100-3. Accordingly, X is granted an
extension of time of one hundred twenty (120) days from the date of this letter to elect to
treat A, B, C, and D as QSubs effective Date 3. The election should be made for each
subsidiary by filing Form 8869 with the appropriate service center. A copy of this letter
should be attached to the elections.

   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 a valid
S corporation or whether A, B, C, and D are eligible to be QSubs.

  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, we are sending a

copy of this letter to your authorized representatives.

   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:______/s/______________________
                                  Stacy L. Short
                                  Senior Technician Reviewer, Branch 3
                                  Office of Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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