PLR 1250018: IRS grants extra time to make a qualified subchapter S subsidiary election

Plain-English summary

The IRS granted a corporation an additional 120 days to elect to treat its wholly owned subsidiary as a qualified subchapter S subsidiary, or QSub. The corporation had intended the election to take effect on an earlier date but missed the filing deadline through inadvertence, while filing tax returns consistent with QSub treatment. The IRS found that the requirements for relief under Treas. Reg. § 301.9100-3 were satisfied. The ruling did not decide whether the parent was a valid S corporation or whether the subsidiary was otherwise eligible to be a QSub.

Ruling snapshot

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

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201250018 Third Party Communication: None
Release Date: 12/14/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1361.01-00, 1361.01-02, ---------------, ID No. -----------------
Telephone Number:
9100.00-00
---------------------
Refer Reply To:
----------------------- CC:PSI:B01
------------------ PLR-126356-12
------------------------------ Date:
------------------------ August 23, 2012

LEGEND

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

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

Date 1 = ----------------------

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

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

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

This responds to a letter dated May 31, 2012, 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
as a qualified subchapter S subsidiary (QSub) under section § 1361(b)(3) of the Internal
Revenue Code (the Code).

FACTS

According to the information submitted and representations within, X elected to be
treated as an S corporation effective Date 1. X represents that it owns 100% of A and
intended to elect to treat A as a QSub effective Date 2. However, due to inadvertence,
PLR-126356-12 2

X failed to timely file a QSub election for A. X represents that X has filed tax returns for
all tax years consistent with the treatment of A as a QSub.

LAW AND ANALYSIS

Section 1361(b)(3)(A) generally provides that a QSub shall not be treated as a separate
corporation and 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 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 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, QSub Election.

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
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.

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Accordingly, X is granted an
extension of time of 120 days from the date of this letter to elect to treat A as a QSub,
effective Date 2. The election should be made by filing Form 8869 with the appropriate
PLR-126356-12 3

service center, and a copy of this letter should be attached to the election. A copy is
enclosed for that purpose.

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 is eligible to be a QSub.

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.

In accordance with the power of attorney on file with this office, a copy of this letter is
being mailed to X's authorized representative.

                                    Sincerely,

                                    Curt G. Wilson
                                    Associate Chief Counsel
                                    (Passthroughs & Special Industries)



                              By: David R. Haglund
                                  David R. Haglund, Branch Chief
                                  Branch 1
                                  Office of the Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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

cc: