PLR 1337004: S corporation receives more time to elect QSub status

Plain-English summary

An S corporation asked for extra time to elect to treat two wholly owned subsidiaries as qualified subchapter S subsidiaries, or QSubs, effective on an earlier date. The IRS found that the requirements for relief under the section 9100 regulations were satisfied and granted 120 days from the ruling date to file Form 8869. The corporation had to attach copies of the ruling to the forms. The IRS did not rule on whether the corporation qualified as a small business corporation or whether either subsidiary independently met the QSub requirements.

Ruling snapshot

• Question: May the S corporation make late QSub elections effective as of the requested earlier date?
• Outcome: Approved, with 120 days to file Form 8869.
• 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: 201337004 Third Party Communication: None
Release Date: 9/13/2013 Date of Communication: Not Applicable
Index Number: 9100.00-00, 1361.05-00
Person To Contact:
-------------------------- ---------------, ID No. ------------------
----------------------------------------------- Telephone Number:
--------------------------------------------- ----------------------
------------------------------------ Refer Reply To:
CC:PSI:B02
PLR-120237-13
Date:
May 14, 2013

Legend

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

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

Z = ------------------------------------------------------

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

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

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

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

This responds to a letter dated April 29, 2013, 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 and Z as qualified subchapter S
subsidiaries (QSubs) for federal tax purposes.

The information submitted states that X was formed under the laws of State on Date 1.
The information submitted states that Y and Z were formed under the laws of State on
Date 2. X, an S corporation, had intended to elect to treat Y and Z as a QSubs effective
as of Date 2. However, the elections to treat Y and Z as QSubs effective as of Date 2
were not timely filed.

X represents that X, Y, Z, and X’s shareholders have filed tax returns for all of the
PLR-120237-13 2

relevant tax years that are consistent with the income taxation of Y and Z as a QSubs
from Date 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 and Z as QSubs effective Date 2.
A copy of this letter should be attached to the Form 8869 for Y and Z. Two copies of
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this letter are enclosed for that purpose.

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 or Z 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 representative.

                                     Sincerely,


                                     Associate Chief Counsel
                                     (Passthroughs & Special Industries)



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

Enclosures (3)
2 copies of this letter
Copy for § 6110 purposes