PLR 1238021: IRS grants extra time to elect qualified subchapter S subsidiary treatment

Plain-English summary

The IRS granted an S corporation an additional 120 days to make a late election to treat its wholly owned subsidiary as a qualified subchapter S subsidiary. The parent had acquired all of the subsidiary's stock but had not timely filed Form 8869. The IRS concluded that the requirements for relief under the regulations governing extensions of time were satisfied. The election could be effective as of the requested date, and the ruling required the company to file Form 8869 and attach a copy of the letter. The ruling expressed no opinion on whether the parent was a valid S corporation or whether the subsidiary otherwise qualified for QSub treatment.

Ruling snapshot

• Question: May the S corporation receive more time to make a late QSub election for its wholly owned subsidiary?
• Outcome: Approved
• Key authorities: IRC § 1361(b)(3); 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: 201238021 Third Party Communication: None
Release Date: 9/21/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1361.00-00, 1361.05-00, ---------------------, ID No. ------------------
Telephone Number:
9100.00-00
--------------------
Refer Reply To:
-------------------------- CC:PSI:B03
--------------------------- PLR-148947-11
------------------------------- Date:
------------------------------ May 22, 2012

Legend
Company = --------------------------

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

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

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

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

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

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

This letter responds to a letter dated November 10, 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

PLR-148947-11 2

outstanding stock of Subsidiary and intended to treat Subsidiary as a QSub effective
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 § 1362(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.

PLR-148947-11 3

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 expressly provided herein, we express or imply no opinion concerning the tax
consequences of the facts described above under any other provisions 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 requesting 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,



                                   Stacy L. Short
                                   Senior Technician Reviewer
                                   Office of the Associate Chief Counsel
                                   (Passthroughs & Special Industries)

Enclosures (2)

   Copy of this letter
   Copy for § 6110 purposes

cc: