S corporation receives 120 days to make a late QSub election

Plain-English summary

An S corporation owned all the stock of a domestic subsidiary and intended to treat it as a qualified subchapter S subsidiary from the acquisition date. The parent failed to file Form 8869 because of inadvertence and requested additional time under the regulatory relief rules. The IRS concluded that the parent satisfied the requirements for discretionary relief. It granted 120 days to file Form 8869 with a copy of the ruling attached. The IRS did not rule on whether the parent was a valid S corporation or whether the subsidiary otherwise qualified as a QSub.

Ruling snapshot

• Question: Could the S corporation make a late QSub election 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(a) and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201711006 Third Party Communication: None
Release Date: 3/17/2017 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-126115-16
Date:
December 13, 2016

LEGEND

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

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

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

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

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

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

This responds to a letter dated July 29, 2016, 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
A as a QSub effective Date 2. However, due to inadvertence, X failed to file Form 8869,
Qualified Subchapter S Subsidiary Election.
PLR-126115-16 2

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-126115-16 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

cc: