S corporation receives more time to elect QSub status

Plain-English summary

An S corporation acquired all the stock of another corporation and intended to treat the subsidiary as a qualified subchapter S subsidiary from the acquisition date. It failed to file Form 8869 because of inadvertence. The IRS found that the requirements for regulatory election relief under Treasury Regulation section 301.9100-3 were satisfied. It granted the parent 120 days to file Form 8869 and make the QSub election effective as of the requested date.

Ruling snapshot

• Question: Could an S corporation receive an extension to make a late QSub election for its wholly owned subsidiary?
• Outcome: Approved, with 120 days from the letter date to file Form 8869.
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

                                                               Third Party Communication: None
Number: 201612011                                              Date of Communication: Not Applicable
Release Date: 3/18/2016
                                                               Person To Contact:
Index Number: 1362.04-00
                                                               ----------------, ID No. ------------------
------------------------------------------------------------   Telephone Number:

--                                                             ----------------------
--------------------------------------------------             Refer Reply To:
--------------------------------------------                   CC:PSI:B01
-----------------------------------                            PLR-135226-15
                                                               Date:
                                                               December 11, 2015




LEGEND

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

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

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

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

Date3 =           ----------------------

Date4 =           ----------------------

State =           -------



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

This responds to a letter dated October 21, 2015, submitted on behalf of X by X’s
authorized representative, and supplemental information, requesting relief pursuant to
§ 301.9100-3 of the Procedure and Administration Regulations that X be granted an
extension of time to elect to treat Y as a qualified subchapter S subsidiary (QSub) under
section § 1361(b)(3) of the Internal Revenue Code (the Code).

FACTS

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According to the information submitted and representations within, X was incorporated
and elected to be treated as an S corporation under the laws of State on Date 1. Y was
incorporated under the laws of State on Date 2. Y elected to be treated as an S
corporation effective Date 3. X represents that, at all times on and after Date 4, X has
owned all of the outstanding stock of Y and intended to elect to treat Y as a QSub
effective Date 4. However, due to inadvertence, X failed to file Form 8869, Qualified
Subchapter S Subsidiary Election.

LAW AND ANALYSIS

Section 1361(b)(3)(A) generally 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 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, QSub Election.

Section 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 evidence to establish to the satisfaction of the

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Commissioner that (1) the taxpayer acted reasonably and in good faith, and (2) granting
relief will not prejudice the interests of the Government.

CONCLUSION

Based solely on the facts submitted and representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Accordingly, X is granted an
extension of time of 120 days from the date of this letter to elect to treat Y as a QSub,
effective Date 4. The election should be made by filing Form 8869 with the appropriate
service center, and a copy of this letter should be attached to the election. A copy is
enclosed for that purpose.

Except as specifically set forth above, we express or imply no opinion concerning the
federal tax consequences of the facts described above under any other provision of the
Code. Specifically, we express or imply no opinion concerning whether X is a valid S
corporation, or whether Y is eligible to be a QSub.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) 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 mailed to X's authorized representative.



                                        Sincerely,


                                        David R. Haglund
                                        David R. Haglund
                                        Branch Chief, Branch 1
                                        Office of the Associate Chief Counsel
                                        (Passthroughs & Special Industries)



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

cc: