Inadvertence justified late QSub election

Plain-English summary

An S corporation formed a wholly owned domestic subsidiary and intended to treat it as a qualified subchapter S subsidiary from its formation date. The parent inadvertently failed to file Form 8869 on time, although both entities filed all relevant tax returns consistently with QSub treatment. The IRS found that the parent satisfied the standards for discretionary deadline relief. It gave the parent 120 days to file Form 8869 with the intended effective date. The ruling did not decide whether the parent otherwise qualified as an S corporation or whether the subsidiary otherwise met the QSub requirements.

Ruling snapshot

• Question: Could the S corporation make a late QSub election for its wholly owned subsidiary?
• Outcome: Approved, with 120 days to file Form 8869
• Key authorities: IRC § 1361(b)(3); 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

Third Party Communication: None
Number: 201531001 Date of Communication: Not Applicable
Release Date: 7/31/2015
Person To Contact:
Index Numbers: 1361.05-00, 9100.00-00 -----------------------, ID No. -----------------
Telephone Number:
----------------------- --------------------
------------------------------- Refer Reply To:

--------------------- CC:PSI:B03
-------------------- PLR-102112-15
Date:
April 28, 2015

Legend

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

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

State = ------

Date1 = --------------------------

Date2 = --------------------------

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

This letter responds to a letter dated November 24, 2014, and subsequent
correspondence, 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 elect to treat Y as a qualified subchapter S subsidiary (QSub).

The information submitted states that X was incorporated under the laws of
State, and elected to be treated as an S corporation effective Date1. On Date2, Y was
formed under the laws of State as a wholly-owned subsidiary of X. X intended to elect
to treat Y as a QSub effective as of Date2. However, due to inadvertence, X failed to
timely file Form 8869, Qualified Subchapter S Subsidiary Election, on behalf of Y. X
represents that X and Y have filed tax returns for all of the relevant tax years consistent
with the tax treatment of Y as a QSub from Date2.
PLR-102112-15 2

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, 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 as 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.

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 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
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 the evidence (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that (1) the
taxpayer acted reasonably and in good faith, and that (2) the grant of 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 §§ 301.9100-1 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 with the appropriate service center to elect to treat Y as a QSub effective
Date2. A copy of this letter should be attached to the Form 8869.
PLR-102112-15 3

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 regarding whether X otherwise
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.

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.

In accordance with the power of attorney on file with this office, we are sending a
copy of this letter to each of X’s authorized representatives.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: _____
Mary Beth Carchia
Senior Technician Reviewer, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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