PLR 1328019: IRS grants extra time for multiple QSub elections

Plain-English summary

The IRS granted a corporation 120 days to make elections treating several wholly owned subsidiaries as qualified subchapter S subsidiaries. The taxpayer had inadvertently filed separate S corporation elections for some subsidiaries and had not made the desired QSub elections. The IRS concluded that the requirements for relief under Treas. Reg. § 301.9100-3 were satisfied and specified the effective dates for the QSub elections. The ruling did not address whether the parent or subsidiaries otherwise qualified.

Ruling snapshot

• Question: Could the corporation receive extra time to make the specified QSub elections?
• Outcome: Approved, subject to filing Form 8869 for each subsidiary within 120 days.
• Key authorities: IRC § 1361; Treas. Reg. §§ 1.1361-3, 301.9100-1 through 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201328019 Third Party Communication: None
Release Date: 7/12/2013 Date of Communication: Not Applicable
Index Number: 1361.05-00, 9100.00-00
Person To Contact:
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------------------------ Telephone Number:
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---------------------------------- Refer Reply To:
CC:PSI:02
PLR-143945-12
Date:
April 3, 2013

                                                LEGEND
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A =
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P =
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Q =
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R =
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S =
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T =
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U =
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V =
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W =
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X =
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Y =
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PLR-143945-12 2

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Z =
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State = --------------

Year 1 = -------

Year 2 = -------

Year 3 = -------

Year 4 = -------

Year 5 = -------

Year 6 = -------

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

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

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

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

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

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

Date 7 = --------------------

Date 8 = ----------------------

Date 9 = ------------------------

Date 10 = ------------------------

Date 11 = ------------------------

a = ----
PLR-143945-12 3

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

    This letter responds to a letter dated October 4, 2012, submitted on behalf of P,

requesting an extension of time under § 301.9100-3 of the Procedure and
Administration Regulations for P to elect to treat Q, R, S, T, U, V, W, X, and Y as
qualified subchapter S subsidiaries (“QSubs”) for federal tax purposes.

                                     FACTS

   The information submitted states that P incorporated in Year 2 and timely elected

to be taxed as an S Corporation on Date 3. Q incorporated in Year 1 and elected to be
taxed as an S Corporation on Date 1. R incorporated in Year 2 and timely elected to be
taxed as an S Corporation effective Date 2. S incorporated in Year 3 and timely elected
to be taxed as an S Corporation effective Date 4. T incorporated in Year 4 and timely
elected to be taxed as an S Corporation effective Date 5. U incorporated in Year 4 and
elected to be taxed as an S Corporation effective Date 6. All entities incorporated under
the laws of State.

   In Year 5, P, Q, R, S, T, U, and their respective shareholders entered into a

series of transactions through which Q, R, S, T, and U became wholly owned by P as of
Date 7 and Z, a single member limited liability company wholly owned by A and treated
as a disregarded entity for federal income tax purposes, acquired an a% interest in P.

  P formed V, W, X, and Y, as wholly owned subsidiaries under the laws of State

on Date 8, Date 9, Date 10, and Date 11, respectively. Following their formation P
inadvertently filed separate elections to treat V, W, X, and Y as S Corporations instead
of QSubs.

   P represents that neither P nor its shareholders were aware of the requirement to

make QSub elections to obtain the desired tax treatment for the subsidiaries. P further
represents that the shareholder’s of P reported consistently with the treatment of Q, R,
S, T, U, V, W, X, and Y as QSubs.

                               LAW & ANALYSIS

  Section 1361(b)(3)(A) 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.
PLR-143945-12 4

    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 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 for making a QSub election. A taxpayer makes a QSub election with respect to
a subsidiary by filing Form 8869, Qualified Subchapter S Subsidiary Election, with the
appropriate service center 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.

   Section 301.9100-1(c) authorizes the Commissioner to grant a reasonable

extension of time for making regulatory elections. Section 301.9100-1(b) defines a
regulatory election to include, among other things, an election whose due date is
prescribed by a regulation published in the Federal Register.

  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. Under § 301.9100-3 request for relief 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.

                                  CONCLUSION

    Based solely on the facts submitted and representations made, we conclude that

P has satisfied the requirements of § 301.9100-3. Accordingly, P is granted an
extension of time of 120 days from the date of this letter to elect to treat Q, R, S, T, and
U as QSubs effective Date 7; V as a QSub as of Date 8; W as a QSub as of Date 9; X
as a QSub as of Date 10; and, Y as QSub as of Date 11. The election should be made
for each subsidiary by filing Form 8869 with the appropriate service center. A copy of
this letter should be attached to the elections and is enclosed for that purpose. Except
as expressly provided herein, no opinion is expressed or implied concerning the tax
consequences of any aspect of any transaction or item discussed or referenced in this
letter.

   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 P qualifies as an S corporation
under § 1361, or whether any of the subsidiaries otherwise meet the definition of a
QSub under § 1361(b)(3)(B). Further, we express no opinion on the federal income tax
PLR-143945-12 5

treatment of the series of transactions through which through which Q, R, S, T, and U
became wholly owned by P and Z acquired an a% interest in P.

  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.

  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,



                                    Bradford R. Poston
                                    Senior Counsel, Branch 2
                                    (Passthroughs & Special Industries)

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

cc: