Parent receives more time to make QSub election

Plain-English summary

An S corporation owned all of a domestic subsidiary's stock and intended to treat the subsidiary as a qualified subchapter S subsidiary from a redacted date. It failed to file Form 8869 because of inadvertence. The IRS found that the parent acted reasonably and in good faith and that relief would not prejudice the government's interests. It granted 120 days to file a properly executed election effective as of the intended date. The IRS did not rule that the parent was a valid S corporation or that the subsidiary was otherwise eligible to be a QSub.

Ruling snapshot

• Question: Could the parent receive an extension to file a late QSub election for its wholly owned subsidiary?
• Outcome: Approved, 120-day extension granted
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201450012 Third Party Communication: None
Release Date: 12/12/2014 Date of Communication: Not Applicable
Index Numbers: 1361.00-00, 1361.05-00,
9100.00-00 Person To Contact:
--------------------, ID No. ----------------
----------------- Telephone Number:
----------------------------------------- ------------------
----------------------------- Refer Reply To:
-------------------------- CC:PSI:B03
PLR-112659-14
Date:
August 19, 2014

                                               LEGEND

Parent = ---------------------------------------------------------------------------------------------
-------------------------

Subsidiary = ---------------------------------------------------------------------------------------------
-------------------------------

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

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

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

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

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

   This letter responds to a letter dated March 20, 2014, and subsequent

correspondence, submitted on behalf of Parent by its authorized representative,
requesting relief under § 301.9100-3 of the Procedure and Administration Regulations
for Parent to elect to treat Subsidiary as a qualified subchapter S subsidiary (QSub).

                                                FACTS

   Parent was incorporated under the laws of State on Date 1 and elected to be

treated as an S corporation effective Date 2. Subsidiary was incorporated under the
laws of State on Date 3. Parent represents that, at all times on and after Date 3, Parent
PLR-112659-14 2

has owned all of the outstanding stock of Subsidiary and intended to elect to treat
Subsidiary as a QSub effective Date 3. However, due to inadvertence, Parent failed to
file Form 8869, Qualified Subchapter S Subsidiary Election.

                                       LAW

   Section 1361(b)(3)(A) of the Internal Revenue Code (Code) 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.

    Section 1361(b)(3)(B) defines a QSub as a domestic corporation which 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. Section 1.1361-3(a)(2) provides that an S
corporation makes a QSub election with respect to a subsidiary by filing a 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 procedures applicable under §§ 301.9100-1 and
301.9100-3.

   Section 301.9100-1(c) provides that the Commissioner may grant a reasonable

extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a
regulatory election, or a statutory election (but not more than 6 months except in the
case of a taxpayer who is abroad), under all subtitles of the Code except subtitles E, G,
H, and I.

   Section 301.9100-2 provides automatic extensions of time for making certain

elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2.

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

                                 CONCLUSION

PLR-112659-14 3

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

that Parent has satisfied the requirements of § 301.9100-3 with respect to the late QSub
election for Subsidiary. Accordingly, Parent is granted an extension of time of 120 days
from the date of this letter to file a properly executed Form 8869 with the appropriate
service center, effective Date 3. A copy of this letter should be attached to the election.

   Except as expressly provided herein, we express or imply no opinion concerning

the federal tax consequences of any aspect of any transaction or item discussed or
referenced in this letter. Specifically, we express or imply no opinion as to whether
Parent is a valid S corporation or whether Subsidiary is eligible to be a QSub.

  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, we are sending a

copy of this letter to your 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/_________________________
                                     Mary Beth Carchia
                                     Senior Technician Reviewer, Branch 3
                                     Office of the Associate Chief Counsel
                                     (Passthroughs & Special Industries)

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

cc: