S corporation receives 120 days for late QSub election

Plain-English summary

An S corporation formed a wholly owned domestic subsidiary and intended to treat it as a qualified subchapter S subsidiary, or QSub, from the subsidiary's formation date. The parent inadvertently failed to file Form 8869, although both companies filed their tax returns consistently with QSub treatment. The IRS concluded that the parent satisfied the standards for discretionary late-election relief. It granted 120 days from the ruling date to file Form 8869 with the requested retroactive effective date. The ruling did not decide whether the parent was a valid S corporation or whether the subsidiary otherwise qualified as a QSub.

Ruling snapshot

• Question: Could the S corporation receive additional time to elect QSub treatment for its wholly owned subsidiary?
• Outcome: approved
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a), 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201735019                                              Third Party Communication: None
Release Date: 9/1/2017                                         Date of Communication: Not Applicable
Index Number: 1361.00-00, 1361.01-00,
              1361.01-02, 9100.00-00                           Person To Contact:
                                                               ------------------------------, ID No. ------------
------------------------------                                 -----------------
-------------------------                                      Telephone Number:
---------------------                                          ----------------------
-----------------------------------                            Refer Reply To:
                                                               CC:PSI:B01
                                                               PLR-139256-16
                                                               Date:
                                                               May 25, 2017


LEGEND:

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

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

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

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

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


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

        This responds to a letter dated December 14, 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 § 1361(b)(3) of the
Internal Revenue Code (the Code).

FACTS

        According to the information submitted and representations within, X elected to
be treated as an S corporation effective Date 1. A was incorporated under the laws of
State on Date 2 as a wholly-owned subsidiary of X. X represents that it intended to
elect to treat A as a QSub effective Date 2. However, due to inadvertence, X failed to

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file Form 8869, Qualified Subchapter S Subsidiary Election. X represents that X and A
have filed tax returns for all tax years consistent with the treatment of A as a QSub.

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 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 (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 A as a QSub,
effective Date 2. The election should be made by filing Form 8869 with the appropriate

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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 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.

         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,

                                           John P. Moriarty
                                           Acting Associate Chief Counsel
                                           (Passthroughs & Special Industries)



                                           Faith P. Colson

                                    By:    ________________________________
                                           Faith P. Colson
                                           Senior Counsel, Branch 1
                                           Office of the Associate Chief Counsel
                                           (Passthroughs and Special Industries)




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


cc: