S corporation receives more time for four QSub elections

Plain-English summary

An S corporation owned four subsidiaries but failed to timely elect qualified subchapter S subsidiary status for them. The parent and its shareholders said they did not know the elections were required, and the shareholder had consistently reported all four subsidiaries as QSubs. The IRS found that the parent satisfied the regulatory standards for late-election relief. It granted 120 days from the ruling date to file a separate Form 8869 for each subsidiary with the requested effective dates.

Ruling snapshot

• Question: Could the parent receive an extension to make late QSub elections for four wholly owned subsidiaries?
• Outcome: Approved
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201550003 Third Party Communication: None
Release Date: 12/11/2015 Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 1361.05-00
Person To Contact:
-------------------------------- ------------------------, ID No. ----------------
----------------------------------------------- Telephone Number:
----------------------------- --------------------
-------------------------------- Refer Reply To:
CC:PSI:B3
PLR-102120-15
Date:
July 21, 2015

LEGEND

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

P = ---------------------------
----------------------

Q = --------------------------
----------------------

R = ---------------------------------------
----------------------

T = ---------------------
----------------------

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

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

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

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

Date 4 = ------------------

Date 5 = --------------------------

Date 6 = ---------------------

Date 7 = -----------------------
PLR-102120-15 2

Date 8 = --------------------------

Date 9 = -----------------

Date 10 = -----------------

Date 11 = ---------------------

Date 12 = ---------------------

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

This letter responds to a letter dated December 16, 2014, 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 P, Q, R, and T as qualified subchapter
S subsidiaries (“QSubs”) for federal tax purposes.

FACTS

The information submitted states that X was formed as a limited liability company (LLC)
on Date 1 and its S Corporation election was accepted as effective on Date 2. P was
incorporated on Date 1 and elected to be taxed as an S Corporation on Date 3. X
owned all of P beginning on Date 1. Q incorporated on Date 4 and elected to be
taxed as an S Corporation effective Date 6. X owned all of Q beginning on Date 5. R
incorporated on Date 7. X owned all of R beginning on Date 8. T was formed as an
LLC on Date 9 and its S Corporation election was accepted as effective Date 10. X
owned all of T beginning on Date 9 and ending Date 11. All entities incorporated under
the laws of State.

X requests a QSub election for P as of Date 3, for Q as of Date 6, for R as of Date 12
and for T as of Date 10.

X represents that neither X nor its shareholders were aware of the requirement to make
QSub elections to obtain the desired tax treatment for the subsidiaries. X further
represents that the shareholder of X reported consistently with the treatment of P, Q, R,
and T as QSubs.

LAW

Section 1361(b)(3)(A) 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
PLR-102120-15 3

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 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 for
making a QSub election. A taxpayer makes a QSub election with respect to a subsidiary
by filing Form 8869, Qualified Subchapter S Subsidiary Election, with the appropriate
service center 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.

Section 301.9100-1(c) provides that the Commissioner in exercising the
Commissioner’s discretion 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 301.9100-1(b)
provides that the term “regulatory election” includes an election whose due date is
prescribed by a regulation published in the Federal Register.

Section 301.9100-2 provides the standards the Commissioner will use to determine
whether to grant an automatic extension of time for making certain elections.

Section 301.9100-3 provides the guidelines for granting 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

Based solely on the facts submitted and representations made, we conclude that X has
satisfied the requirements of § 301.9100-3. Accordingly, X is granted an extension of
time of 120 days from the date of this letter to elect to treat P as a QSub effective Date
3; Q as a QSub as of Date 6; R as a QSub as of Date 12; and T as a QSub as of Date

10. The election should be made for each subsidiary by filing Form 8869 with the
    appropriate service center. A copy of this letter should be attached to the elections and
    is enclosed for that purpose. Except as expressly provided herein, no opinion is
    expressed or implied concerning the tax consequences of any aspect of any transaction
    or item discussed or referenced in this letter.
    PLR-102120-15 4

Except as expressly provided herein, no opinion is expressed or implied concerning the
federal income tax consequences of any aspect of any transaction or item discussed or
referenced in this letter under any other provision of the Code. Specifically, we express
no opinion regarding whether X qualifies as an S corporation under § 1361, or whether
any of the subsidiaries otherwise meet the definition of a QSub under § 1361(b)(3)(B).

   This ruling is directed only to the taxpayer that requested 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 a power of attorney on file with this office, we are sending a

copy of this letter to your authorized representative.

                                  Sincerely,



                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)

                                  By:___________________________
                                  Richard Probst
                                  Senior Technician Reviewer, Branch 3
                                  Office of Associate Chief Counsel
                                  (Passthroughs & Special Industries)

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

cc: