PLR 1320011: IRS grants more time to elect QSub treatment

Plain-English summary

The IRS considered an S corporation's request for more time to elect to treat a wholly owned subsidiary as a qualified subchapter S subsidiary. The S corporation had purchased the subsidiary but inadvertently failed to timely file Form 8869. The IRS found that the requirements for relief were satisfied, including that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. It granted 120 days from the letter date to file Form 8869, effective on the redacted date.

Ruling snapshot

• Question: May the S corporation file a late election to treat its subsidiary as a QSub?
• Outcome: Approved
• Key authorities: IRC §§ 1361 and 1362; 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: 201320011 Third Party Communication: None
Release Date: 5/17/2013 Date of Communication: Not Applicable
Index Number: 1361.05-00, 9100.00-00
Person To Contact:
--------------------------------- ----------------------, ID No. -----------------
----------------------- Telephone Number:
--------------------------------- ---------------------
------------------------------------------- Refer Reply To:
CC:PSI:02
PLR-141491-12
Date:
January 10, 2013

                                                   LEGEND

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

Y = ---------------------------------

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

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

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

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

   This letter responds to a letter dated August 20, 2012, and subsequent

correspondence, 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 a qualified subchapter S subsidiary (QSub) for federal
tax purposes.

  The information submitted states that X, an S corporation for federal tax

purposes, entered into a stock purchase agreement to purchase Y on Date 1 and
completed the stock purchase on Date 2. Due to inadvertence, X failed to timely file
Form 8869, Qualified Subchapter S Subsidiary Election, for Y.

   Section 1362(a) generally provides that a small business corporation may elect

to be an S corporation.
PLR-141491-12 2

    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.

  Sections 301.9100-1 through 301.9100-3 set forth the standards by which the

Commissioner will determine whether to grant an extension of time to make an election.
Section 301.9100-2 provides the rules governing automatic extensions of time for
making certain elections. Section 301.9100-3 describes the conditions under which the
Commissioner will grant requests for relief that do not meet the requirements of
§ 301.9100-2. Requests for relief under § 301.9100-3 will be granted when the
taxpayer provides evidence to establish that (1) the taxpayer acted reasonably and in
good faith, and (2) granting relief will not prejudice the interests of the government.

   Based solely on 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 3. A
copy of this letter should be attached to Form 8869 and is enclosed for that purpose.

  The rulings contained in this letter are 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 request for rulings, it is subject to verification on
examination.

   Except as expressly provided herein, no opinion is expressed or implied

concerning the federal income tax consequences of any aspect of any transaction or
item discussed or referenced in this letter 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 meets the definition of QSub under
§ 1361(b)(3)(B).
PLR-141491-12 3

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of

the Code 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 sent to your authorized representative.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)



                              By: ____________________________
                                  Charlotte Chyr
                                  Senior Technician Reviewer, Branch 2
                                   (Passthroughs & Special Industries)

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

cc: