PLR 1243008: IRS extends time to elect QSub treatment for three subsidiaries

Plain-English summary

The IRS granted an S corporation 120 days to file Forms 8869 and elect to treat three wholly owned subsidiaries as qualified subchapter S subsidiaries. The parent had intended to make the elections but failed to file the forms on time. The IRS concluded that the requirements for relief under the extension-of-time regulations were satisfied, subject to filing the required federal income tax returns consistently with the relief. The ruling expressed no opinion on whether the parent was a valid S corporation or whether the subsidiaries otherwise qualified as QSubs.

Ruling snapshot

• Question: Could the parent make late QSub elections for three wholly owned subsidiaries?
• 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: 201243008 Third Party Communication: None
Release Date: 10/26/2012 Date of Communication: Not Applicable
Index Numbers: 1361.00-00, 1361.05-00,
9100.00-00 Person To Contact:
----------------------, ID No. -----------------
--------------------------------- Telephone Number:
----------------------------------------- ---------------------
------------------------------ Refer Reply To:
------------------------------------ CC:PSI:B03
PLR-111726-12
Date: June 21, 2012

                                              LEGEND

X = ----------------------------------------------------------------------------------------------------
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A = ----------------------------------------------------------------------------------------------------
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B = ----------------------------------------------------------------------------------------------------
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C = ----------------------------------------------------------------------------------------------------
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Date 1 = ---------------------

Date 2 = ----------------------

Date 3 = ---------------------

Date 4 = --------------------------

Date 5 = -------------------

Date 6 = ----------------------

Year = -------

State = ----------
1
PLR-111726-12 2

State = ------
2

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

    This responds to a letter dated March 15, 2012, and subsequent

correspondence, submitted on behalf of X by X’s authorized representative, requesting
relief pursuant to § 301.9100-3 of the Procedure and Administration Regulations that X
be granted an extension of time to elect to treat A, B, and C as qualified subchapter S
subsidiaries (QSubs) under § 1361(b)(3) of the Internal Revenue Code.

                                      FACTS

    The information submitted states that X formed as a State 1 limited liability

company on Date 1 and filed an S corporation election effective for its taxable year
beginning Date 2. A formed as a State 1 limited liability company and filed an S
corporation election effective for its taxable year beginning Date 3. B incorporated
under the laws of State 2 on Date 4. C incorporated under the laws of State 2 on Date

5. B and C each filed an S corporation election effective for its taxable year beginning
   Date 6. Since Date 3, X has owned all of the stock of A and has intended to treat A as
   a QSub effective Date 3. Since Date 6, X has owned all of the stock of B and C and
   has intended to treat B and C as QSubs effective Date 6. However, X failed to timely
   file Forms 8869, Qualified Subchapter S Subsidiary Election, for A, B, and C.

                             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.
   PLR-111726-12 3

   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 has discretion to grant a
   

   reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3
   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 automatic extensions of time for making certain
   elections. Section 301.9100-3 provides extensions of time for making elections that do
   not meet the requirements of § 301.9100-2.

   Section 301.9100-3(a) 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, we grant X an
   extension of time of one hundred twenty (120) days from the date of this letter to elect to
   treat (i) A as a QSub effective Date 3, and (ii) B and C as QSubs effective Date 6. Each
   election should be made by filing Form 8869 with the appropriate service center. A
   copy of this letter should be attached to each election.

   This ruling is contingent upon the filing within 120 days of this letter any and all
   required Federal income tax returns from Year to the present consistent with the
   requested relief.

   Except as expressly provided herein, we express or imply no opinion concerning
   

   the tax consequences of any aspect of any transaction or item discussed or referenced
   in this letter. Specifically, we express or imply no opinion concerning whether X is a
   valid S corporation, or whether A, B, and C are eligible to be QSubs.

   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.
   PLR-111726-12 4

   In accordance with a power of attorney on file with this office, we are sending a
   copy of this letter to your authorized representative.

   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:       ______________________________________
                                Richard T. Probst
                                Senior Technician Reviewer, Branch 3
                                Office of the Associate Chief Counsel
                                (Passthroughs & Special Industries)
   

Enclosures (2):

  A copy of this letter
  A copy for § 6110 purposes