S corporation gets late QSub election relief

Plain-English summary

An S corporation intended to treat its wholly owned subsidiary as a qualified subchapter S subsidiary but did not timely file Form 8869. The corporation represented that it, the subsidiary, and its shareholders had consistently filed their relevant returns as though the subsidiary were a QSub from the intended effective date. The IRS concluded that the regulatory-extension requirements were satisfied and granted 120 days to file the election. The ruling did not decide whether the parent qualified as a small business corporation or whether the subsidiary otherwise met the QSub definition.

Ruling snapshot

• Question: May the S corporation file a late Form 8869 election to treat its subsidiary as a QSub?
• Outcome: Approved, with 120 days to file
• Key authorities: IRC § 1361(b)(3)(B); Treas. Reg. §§ 1.1361-3(a) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201442016 Third Party Communication: None
Release Date: 10/17/2014 Date of Communication: Not Applicable
Index Number: 1361.00-00, 1361.05-00
9100.00-00, 9100.22-00 Person To Contact:
-------------------, ID No. ----------------
-------------------------------------------------------- Telephone Number:
---------------------------------- --------------------
---------------------------------------- Refer Reply To:
------------------------------- CC:PSI:B03
PLR-112174-14
Date:
June 17, 2014

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

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

State = ---------------
Date 1 = ------------------------
Date 2 = -------------------

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

  This responds to a letter dated March 11, 2014, 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 Y was formed under the laws of State on

Date 1. X, an S corporation, had intended to elect to treat Y as a QSub effective as of
Date 2. However, X failed to timely file Form 8869, Qualified Subchapter S Subsidiary
Election, to treat Y as a QSub effective as of Date 2.

  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.

   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.
PLR-112174-14 2

 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.

   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 meets the definition of
a QSub under § 1361(b)(3)(B).

  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.
PLR-112174-14 3

   In accordance with 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 and Special Industries)



                                       By:       _______________
                                                 Bradford R. Poston
                                                 Senior Counsel, Branch 3
                                                 Office of Associate Chief Counsel
                                                 (Passthroughs & Special Industries)

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

cc: