S corporation receives more time to elect QSub status

Plain-English summary

An S corporation acquired all the stock of another S corporation but did not timely elect to treat the subsidiary as a qualified subchapter S subsidiary. The parent and its shareholders said they did not know a QSub election was required, and the shareholder had consistently reported the subsidiary as a QSub. The IRS found that the parent satisfied the regulatory standards for late-election relief. It granted 120 days from the ruling date to file Form 8869 with the requested effective date.

Ruling snapshot

• Question: Could the parent receive an extension to make a late QSub election for its wholly owned subsidiary?
• 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: 201550004 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-102121-15
Date:
July 21, 2015

LEGEND

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

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

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

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

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

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

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 as a qualified subchapter S
subsidiary (“QSub”) for federal tax purposes.

FACTS

The information submitted states that X was formed as a limited liability company (LLC)
on Date 1 and elected to be taxed as an S Corporation effective Date 1. P incorporated
on Date 2 and elected to be taxed as an S Corporation effective Date 2. X owned all of
P beginning on Date 3. X requests a QSub election for P as of Date 3.

X represents that neither X nor its shareholders were aware of the requirement to make
PLR-102121-15 2

QSub election to obtain the desired tax treatment for P. X further represents that the
shareholder of X reported consistently with the treatment of P as a QSub.

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
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. The election should be made for P by filing Form 8869 with the appropriate service
   PLR-102121-15 3

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.

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 P
otherwise meets 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: