PLR 201306020: IRS grants extra time to make a QSub election

Plain-English summary

The IRS granted an S corporation an extension of time to elect to treat its wholly owned subsidiary as a qualified subchapter S subsidiary. The corporation had filed Form 2553 instead of Form 8869 because of a procedural error. The taxpayer represented that it, the subsidiary, and its shareholders had filed returns consistently with QSub treatment from the requested effective date. The IRS found that the reasonable-cause and government-interest requirements were satisfied and granted 120 days to file Form 8869.

Ruling snapshot

• Question: Could the S corporation receive additional time to file Form 8869 and make its QSub election effective on the requested earlier date?
• Outcome: approved
• Key authorities: IRC §§ 1361, 1362; Treas. Reg. §§ 1.1361-3, 301.9100-1, 301.9100-2, 301.9100-3

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201306020
Third Party Communication: None
Release Date: 2/8/2013
Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.00-00, 1361.05-00
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Telephone Number:
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Refer Reply To:
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CC:PSI:B02
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PLR-142899-12
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Date:
October 11, 2012

Legend

X = --------------------------------
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Y = -------------------------------------
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State = --------------

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

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

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

This responds to a letter dated September 28, 2012, submitted on behalf of X, requesting that the Service grant X an extension of time under § 301.9100-1(c) of the Procedure and Administration Regulations to elect to treat Y as qualified subchapter S subsidiary (QSub) for federal tax purposes.

The information submitted states that X and Y were formed under the laws of State on Date 1 and Date 2, respectively. X, an S corporation, had intended to elect to treat Y as a QSub effective as of Date 2. However, due to a procedural error, X filed Form 2553, Election by a Small Business Corporation, for Y instead of Form 8869, Qualified Subchapter S Subsidiary Election. As a result, the election to treat Y as a QSub effective as of Date 2 was not timely filed.

X represents that X, Y, and X’s shareholders have filed tax returns for all of the relevant tax years that are consistent with the income taxation of Y as a QSub from Date 2.
PLR-142899-12
2

Section 1362(a) generally provides that a small business corporation may elect to be an 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 qualified subchapter S subsidiary.

Section 1.1361-3(a) of the Income Tax Regulations prescribes the time and manner for making an election to be classified a qualified subchapter S subsidiary.

Section 1.1361-3(a)(4) provides that an election to treat an eligible subsidiary as a qualified subchapter S subsidiary 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, Qualified Subchapter S Subsidiary.

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 Internal Revenue 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 that (2) granting relief will not prejudice the interests of the Government.

Based solely upon the information submitted and the representations made, we conclude that the requirements of § 301.9100 have been satisfied. Accordingly, X is granted an extension of time of 120 days from the date of this letter to file Form 8869 with the appropriate service center to elect to treat Y as a QSub effective Date 2. A copy of this letter should be attached to the Form 8869 for Y. A copy is enclosed for that purpose.
PLR-142899-12
3

Except for the specific rulings above, we express or imply no opinion concerning the federal income tax consequences of the facts of this case under any other provision of the Code. Specifically, we express no opinion regarding whether X qualifies as a small business corporation under § 1361, or whether Y otherwise meet the definition of QSub under § 1361(b)(3)(B).

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. Pursuant to a power of attorney on file with this office, a copy of this letter is being sent to X's authorized representatives.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: ________ Bradford R. Poston
Senior Counsel, Branch 2
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: