S corporation receives relief for a late QSub election

Plain-English summary

A corporation already owned a subsidiary when it elected S corporation status and intended QSub treatment for the subsidiary from the same date. Due to inadvertence, it did not file Form 8869 until a later date. Both corporations filed their relevant returns consistently with QSub treatment. The IRS concluded that the regulatory-relief requirements were met and granted 120 days to file Form 8869 for the intended effective date. It did not decide whether the parent otherwise qualified as an S corporation or the subsidiary otherwise met the QSub requirements.

Ruling snapshot

• Question: May the S corporation obtain relief for its late QSub election?
• Outcome: Approved, with Form 8869 due within 120 days.
• Key authorities: IRC §§ 1361(b)(3) and 1362(a); Treas. Reg. §§ 1.1361-3, 301.9100-1, and 301.9100-3.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201516042 Third Party Communication: None
Release Date: 4/17/2015 Date of Communication: Not Applicable
Index Number: 1361.05-00
Person To Contact:
----------------------- -------------------------, ID No. -----------------
--------------------------- ----------------------------------------------------
------------------- Telephone Number:
------------------------------------ --------------------
Refer Reply To:
CC:PSI:B03
PLR-129826-14
Date:
October 28, 2014

Legend

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

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

Date1 = --------------------
Date2 = ---------------------
Date3 = ---------------------

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

This responds to a letter dated July 23, 2014, and additional information, submitted on
behalf of X by its authorized representative, requesting relief pursuant to § 301.9100-
3(a) of the Procedure and Administration Regulations for X to be granted an extension
of time to elect to treat Sub as a qualified subchapter S subsidiary (QSub) under §
1361(b)(3) of the Internal Revenue Code.

Facts

The information submitted states that Sub was incorporated on Date1. Sub was a
wholly owned subsidiary of X on Date2, when X elected to be treated as an S
corporation. X intended to elect to treat Sub as a QSub effective as of Date2. However,
due to inadvertence, X did not file a Form 8869, Qualified Subchapter S Subsidiary
Election, on behalf of Sub until Date3.

X represents that it and Sub have filed tax returns for all the relevant tax years
consistent with the tax treatment of Sub as a QSub from Date2.
PLR-129826-14 2

Law

Section 1362(a) generally provides that a small business corporation may elect to be an
S corporation.

Section 1361(b)(3)(B) defines a qualified subchapter S subsidiary 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 QSub.

Section 1.1361-3(a) of the Income Tax Regulations prescribes the time and manner for
making an election to be classified a QSub. Section 1.1361-3(a)(4) provides that an
election to treat an eligible subsidiary as a QSub 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.

Conclusion

Based solely upon the information submitted and the representations made, we
conclude that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied.
Accordingly, X is granted an extension of time of 120 days from the date of this letter to
file Form 8869, Qualified Subchapter S Subsidiary Election, with the appropriate service
PLR-129826-14 3

center to elect to treat Sub effective Date2 as a QSub. A copy of this letter should be
attached to the Form 8869. 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 Internal Revenue Code. Specifically, we express no opinion regarding whether X
otherwise qualifies as a small business corporation under § 1361, or whether Sub
otherwise meets the definition of a QSub under § 1361(b)(3)(B).

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 X’s authorized representative.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)


                              By: ___________________________________
                                  Bradford R. Poston
                                  Senior Counsel, Branch 3
                                  (Passthroughs & Special Industries)

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

cc: