PLR 1242006: IRS grants 120 days to make a QSub election

Plain-English summary

The IRS granted a parent corporation 120 days to elect to treat its wholly owned subsidiary as a qualified subchapter S subsidiary. The parent had acquired all of the subsidiary's stock, made an S corporation election, and intended to make the QSub election effective on the same redacted date, but it did not timely file Form 8869. The IRS found that the requirements for relief under Treas. Reg. § 301.9100-3 were satisfied. The ruling did not express an opinion on whether the parent was a valid S corporation or whether the subsidiary was substantively eligible to be a QSub.

Ruling snapshot

• Question: Could the parent receive an extension of time to make the QSub election under Treas. Reg. § 301.9100-3?
• Outcome: Approved
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a), 301.9100-1, 301.9100-2, and 301.9100-3; IRC § 6110

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201242006 Third Party Communication: None
Release Date: 10/19/2012 Date of Communication: Not Applicable
Person To Contact:
Index Numbers: 1361.05-00, 9100.00-00 -------------------, ID No. -------------
Telephone Number:
--------------------
--------------------------- Refer Reply To:
--------------------------- CC:PSI:03
------------------------------------------- PLR-107248-12
----------------------------- Date:
June 14, 2012

                                                 LEGEND

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

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

State = ---------

Date1 = -----------------------

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

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

     This responds to the letter dated February 5, 2012, submitted on behalf of Parent

by its authorized representative, requesting relief under § 301.9100-3 of the Procedure
and Administration Regulations that Parent be granted an extension of time 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, Parent and Subsidiary were incorporated

under the laws of State. On Date1, Parent acquired all of the outstanding stock of
Subsidiary. Parent timely elected to be an S corporation effective Date2 and intended
to treat Subsidiary as a QSub effective Date2. However, Parent 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 the Code — (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.

                                  CONCLUSION

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

requirements of § 301.9100-3 have been satisfied. Consequently, Parent 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 Date2. 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 Parent 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 Parent’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: _____________________________________
                              Tara P. Volungis
                              Chief, Branch 3
                              Office of Associate Chief Counsel
                              (Passthroughs & Special Industries)

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

cc: