S corporation receives 120 days to make a late QSub election

Plain-English summary

An S corporation intended to treat its wholly owned subsidiary as a qualified subchapter S subsidiary but did not timely file Form 8869. The corporation represented that it had consistently filed its returns as though the subsidiary were a QSub from the intended effective date. The IRS found that the requirements of Treasury Regulation § 301.9100-3 were satisfied. It granted 120 days to file Form 8869 with the ruling attached and make the election effective retroactively. The IRS did not determine whether the parent was otherwise a valid S corporation or the subsidiary was otherwise eligible for QSub status.

Ruling snapshot

• Question: Could the S corporation make a late QSub election for its wholly owned subsidiary?
• Outcome: approved
• 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: 201729002 Third Party Communication: None
Release Date: 7/21/2017 Date of Communication: Not Applicable
Index Number: 1362.01-03
Person To Contact:
--------------------------------- ---------------------------, ID No. ---------------
--------------------------------- -----------------
----------------------------------------- Telephone Number:
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Refer Reply To:
CC:PSI:03
PLR-107207-17
Date:
April 18, 2017

LEGEND

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

Sub = ------------------------------------------------------------------------------------------------------
------------------------

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

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

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

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

    This letter responds to a letter dated February 20, 2017, submitted on behalf of X

by its authorized representative, requesting an extension of time under § 301.9100-3 of
the Procedure and Administration Regulations for X to elect to treat Sub 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 formed under the laws of State on

D1 and elected to be an S corporation effective D1. X represents that it intended to
elect to treat Sub as a QSub effective D2. However, X failed to timely file Form 8869,
PLR-107207-17 2

Qualified Subchapter S Subsidiary Election, for Sub. X represents that it has filed its tax
returns for all of the relevant tax years consistent with Sub being a QSub since D2.

                              LAW AND ANALYSIS

    Section 1361(b)(3)(A) provides that except as provided in regulations prescribed

by the Secretary, for purposes of Title 26, (i) a corporation that is a QSub shall not be
treated as a separate corporation, and (ii) 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 the term “qualified subchapter S subsidiary” as a

domestic corporation that is not an ineligible corporation (as defined in § 1361(b)(2)), 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 of making a QSub election. A taxpayer makes a QSub election for a subsidiary
by filing 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 §§ 301.9100-1 and 301.9100-3.

   Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of

time to make a regulatory election, or a statutory election (but no more than six months
except in the case of a taxpayer who is abroad), under all subtitles of the Internal
Revenue Code (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.

   Sections 301.9100-1 through 301.9100-3 provide the standards the

Commissioner will use to determine whether to grant an extension of time to make an
election. Section 301.9100-2 provides automatic extensions of time for making certain
elections. Section 301.9100-3 provides extensions of time for regulatory elections that
do not meet the requirements of § 301.9100-2.

   Section 301.9100-3(a) provides that requests for relief under § 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.
PLR-107207-17 3

                                  CONCLUSION

   Based on the facts and representations submitted, we conclude that the

requirements of § 301.9100-3 have been satisfied. Accordingly, X is granted an
extension of time of one hundred twenty (120) days from the date of this letter to elect to
treat Sub as a QSub, effective D2. The election should be made for Sub by filing Form
8869 with the appropriate service center, with a copy of this letter attached. A copy is
enclosed for that purpose.

   Except for the specific ruling above, we express or imply no opinion concerning

the federal tax consequences of the facts of this case under any other provision of the
Code. Specifically, we express or imply no opinion concerning whether X is a valid S
corporation or whether Sub is eligible to be a QSub.

  This ruling is directed only to the taxpayer requesting it. According to

§ 6110(k)(3) of the Code, this ruling may not be used or cited as precedent.

    Under a power of attorney on file with this office, we are sending a copy of this

letter to X’s authorized representative.

   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.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)


                             By: ___________________________________
                                 Bradford Poston
                                 Senior Counsel, Branch 3
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

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

cc: