S corporation receives late QSub election relief

Plain-English summary

An S corporation intended to treat a wholly owned subsidiary as a qualified subchapter S subsidiary from a specified date but missed the Form 8869 filing deadline. It represented that all relevant tax returns consistently treated the subsidiary as a QSub from that date. The IRS concluded that the corporation met the standards for discretionary filing relief. It allowed 120 days from the ruling date to file Form 8869 with the appropriate service center and attach a copy of the ruling. The IRS did not determine whether the parent otherwise qualified as an S corporation or whether the subsidiary was eligible for QSub status.

Ruling snapshot

• Question: May the corporation make its QSub election late while retaining the intended effective date?
• Outcome: Approved
• Key authorities: IRC § 1361(b)(3); 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: 201444036
Release Date: 10/31/2014
Index Numbers: 1361.05-00, 9100.31-00

------------------------------------- Person To Contact:
------------------------------- ---------------------, ID No. ----------------
------------------------------------------ Telephone Number:
------------------------------- --------------------
------------------------------------ Refer Reply To:
CC:PSI:B03 – PLR-150309-13
Date:
June 04, 2014

                                                LEGEND

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

Sub = --------------------------------------

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

D1 = ---------------------

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

  This letter responds to a letter dated December 6, 2013, and subsequent

correspondence, submitted on behalf of X requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations for X to elect to treat
Sub as a qualified subchapter S subsidiary (“QSub”) under § 1361(b)(3) of the internal
Revenue Code (Code).

                                                 FACTS

   The information submitted discloses that X was formed under the laws of State

and elected to be an S corporation effective D1. X represents that it intended to elect to
treat Sub as a QSub effective D1. However, X failed to timely file Form 8869, Qualified

                                          2

PLR-150309-13

Subchapter S Subsidiary Election, for Sub. X represents that it has filed its tax returns
for all of the relevant tax years consistent with Sub being a QSub since D1.

                               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 that 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 that 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.

   Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of

time 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 Internal
Revenue Code (Code) except subtitles E, G, H, and I. Section 301.9100-1(b) provides
that the term “regulatory election” includes an election whose due date is prescribed by
a regulation published in the Federal Register.

   Sections 301.9100-1 through 301.9100-3 provide the standards the

Commissioner will use to determine whether to grant an extension of time to make an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for regulatory elections that
do not meet the requirements of § 301.9100-2.

   Section 301.9100-3(a) provides that requests for relief under § 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.

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PLR-150309-13

                                  CONCLUSION

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

requirements of § 301.9100-3 have been satisfied. Accordingly, X is granted an
extension of time of one hundred twenty (120) days from the date of this letter to elect to
treat Sub as a QSub, effective D1. The election should be made for Sub by filing Form
8869 with the appropriate service center, with a copy of this letter attached. A copy is
enclosed for that purpose.

   Except for the specific ruling above, we express or imply no opinion concerning

the federal tax consequences of the facts of this case under any other provision of the
Code. Specifically, we express or imply no opinion concerning whether X is a valid S
corporation or whether Sub is eligible to be a QSub.

  This ruling is directed only to the taxpayer requesting it. According to

§ 6110(k)(3) of the Code, this ruling may not be used or cited as precedent.

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

letter to X’s authorized representative.

   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: /s/
                                         Holly Porter
                                         Chief, Branch 3
                                         Office of the Associate Chief Counsel
                                         (Passthroughs & Special Industries)

Enclosures: Copy of this letter
Copy for § 6110 purposes