PLR 1310022: Corporation granted extra time to elect QSubs

Plain-English summary

The IRS granted an S corporation 120 days to file elections treating two wholly owned subsidiaries as qualified subchapter S subsidiaries. The elections were missed through inadvertence, although the parent and subsidiaries had filed tax returns consistently with QSub treatment. The extension was granted under Treas. Reg. § 301.9100-3, subject to filing Form 8869 for each subsidiary. The IRS did not rule on whether the parent was a valid S corporation or whether either subsidiary was otherwise eligible to be a QSub.

Ruling snapshot

• Question: May an S corporation file late QSub elections for two subsidiaries?
• Outcome: Approved, a 120-day extension was granted for the elections.
• Key authorities: IRC § 1361; 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: 201310022 Third Party Communication: None
Release Date: 3/8/2013 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-134489-12
Date:
November 27, 2012

                                                LEGEND

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

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

B = --------------------------------------------------------------------------------------------------------------------
----------------------------

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

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

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

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

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

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

  This responds to a letter dated June 25, 2012, and subsequent correspondence,

submitted on behalf of X by X’s authorized representatives, 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 and B as qualified subchapter S subsidiaries
(QSubs) under § 1361(b)(3) of the Internal Revenue Code.

                                      FACTS

    The information submitted states that X incorporated under the laws of State on

Date 1 and filed an S corporation election effective for its taxable year beginning Date 2.
On Date 3, A was incorporated and elected to be treated as an S corporation effective Date 3.
All of A’s stock was acquired by X on Date 3. X intended to treat A as a QSub effective
Date 3. On Date 4, A acquired all of the outstanding stock of B, an S corporation. X
intended for B to be treated as a QSub, effective Date 4. However, due to inadvertence,
Forms 8869, Qualified Subchapter S Subsidiary Election, were not timely filed for A and B.

   X represents that X, A, and B have filed tax returns for all of the relevant tax years

consistent with the tax treatment of A and B as QSubs.

                              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.

    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 A as a
QSub effective Date 3, and B as a QSub effective Date 4. 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.

    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 and B 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.

  In accordance with a power of attorney on file with this office, we are sending a copy

of this letter to your authorized representatives.

   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

cc: