S corporation receives more time for QSub election

Plain-English summary

An S corporation acquired all stock of another S corporation and intended to treat the acquired company as a qualified subchapter S subsidiary from the acquisition date. The subsidiary inadvertently failed to timely file Form 8869, although both companies reported consistently with QSub treatment in every relevant year. The IRS found that the regulatory-relief standards were satisfied and granted 120 days to make the election retroactive to the acquisition date. The ruling did not decide whether the parent was actually an S corporation or whether the subsidiary was otherwise eligible for QSub status.

Ruling snapshot

• Question: May the parent make a late QSub election effective on the acquisition date?
• Outcome: Approved, with a 120-day extension
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201633003 Third Party Communication: None
Release Date: 8/12/2016 Date of Communication: Not Applicable
Index Number: 1361.05-00, 9100.00-00
Person To Contact:
---------------------------------- -----------------------, ID No. -------------------
------------------------------------------------------------ ---------------------------------------------------
----------------- Telephone Number:
----------------------------------------- ----------------------
--------------------------------------------------- Refer Reply To:
CC:PSI:B01
PLR-104096-16
Date:
April 29, 2016

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

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

State A = ------------

State B = ----------------

D1 = ----------------------

D2 = -------------------

D3 = ------------------------

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

  This responds to the letter dated January 20, 2016, and other information,

submitted on behalf of X, requesting an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations for X to treat Y as a qualified subchapter S
subsidiary (QSub) under § 1361(b)(3) of the Internal Revenue Code (Code).

                                                  Facts

   The information submitted states that X was incorporated under the laws of State

A on D1 and timely elected to be treated as an S corporation, effective on that same
date. Y was incorporated under the laws of State B on D2 and timely elected to be
treated as an S corporation, effective on that same day. X acquired 100% of the stock of
Y as of D3 and represents that it intended to elect to treat Y, as a Qualified Subchapter
PLR-104096-16 2

S Subsidiary (QSub) effective D3. However due to inadvertence, Y failed to timely file
Form 8869, Qualified Subchapter S Subsidiary Election. X represents that both it and Y
have filed tax returns and reported tax items consistent with the tax treatment of Y as a
QSub for all relevant years since D3.

                                Law and Analysis

  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 owned by the S
corporation, and the S corporation elects to treat the corporation as a qualified
subchapter S subsidiary.

   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 a Form 8869 with the appropriate service center. Section 1.1361-
3(a)(4) provides that a QSub election cannot be effective more than two months and 15
days prior to the date of filing.

   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 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.
PLR-104096-16 3

                                     Conclusion

    Based solely on the facts submitted and the 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 D3. 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, in fact,
an 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) 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 your authorized representative.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)



                               By: David R. Haglund
                                   David R. Haglund
                                   Branch Chief, Branch 1
                                   (Passthroughs & Special Industries)

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