Late qualified subchapter S subsidiary election is approved

Plain-English summary

An S corporation wholly owned a domestic subsidiary and intended to treat it as a qualified subchapter S subsidiary from the subsidiary's incorporation date. The parent inadvertently failed to file Form 8869. The IRS concluded that the parent satisfied the discretionary-relief requirements of Treasury Regulation section 301.9100-3. It granted 120 days from the ruling date to file the QSub election effective as of the intended date. The IRS did not decide whether the parent was otherwise a valid S corporation or whether the subsidiary was otherwise eligible to be a QSub.

Ruling snapshot

• Question: Could an S corporation receive additional time to elect QSub treatment 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 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201649002                                              Third Party Communication: None
Release Date: 12/2/2016                                        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:B01
                                                               PLR-105383-16
                                                               Date:
                                                               August 19, 2016




LEGEND

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

A                 =         -----------------------------------------
----------------------------------------------------

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

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

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

Dear ---------------

This responds to a letter dated February 10, 2016, and subsequent correspondence,
submitted on behalf of X by X’s authorized representative, 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 A as a qualified subchapter S subsidiary (QSub) under
section § 1361(b)(3) of the Internal Revenue Code (the Code).

FACTS

According to the information submitted, X was incorporated under the laws of State on
Date 1 and elected to be treated as an S corporation effective Date 1. A was
incorporated under the laws of State on Date 2. X represents that, at all times on and
after Date 2, X has owned all of the outstanding stock of A and intended to elect to treat
PLR-105383-16                                 2

A as a QSub effective Date 2. However, due to inadvertence, X failed to file Form 8869,
Qualified Subchapter S Subsidiary Election.

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 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 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 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 A as a QSub, effective Date
PLR-105383-16                                  3

2. The election should be made by filing Form 8869 with the appropriate service center.
A copy of this letter should be attached to the Form 8869.

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 A 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.

Pursuant to 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: Joy C. Spies
                                      Joy C. Spies
                                      Senior Technician Reviewer, Branch 1
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)



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