120-day extension granted to make a late QSub election for a wholly owned subsidiary

Plain-English summary

An S corporation acquired all the stock of another S corporation and intended to fold it in as a "qualified subchapter S subsidiary" (QSub), which makes the subsidiary disappear for tax purposes so its assets and income are treated as the parent's. Making that happen requires filing Form 8869 on time, and the parent missed the deadline. It asked the IRS for more time under the "9100" relief regulations (Treas. Reg. § 301.9100-3), which let the IRS excuse a missed regulatory election when the taxpayer acted reasonably and in good faith and the government is not prejudiced. The IRS found those requirements met and granted 120 days from the date of the letter to file the QSub election, effective back to the intended date. The IRS did not rule on whether the parent is a valid S corporation or whether the subsidiary actually qualifies as a QSub, only that the late election is allowed.

Ruling snapshot

• Question: Should the S corporation get an extension of time under § 301.9100-3 to make the QSub election it missed?
• Outcome: Approved (120-day extension granted, effective to the intended date; S-corp/QSub eligibility not addressed)
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201837002 Third Party Communication: None
Release Date: 9/14/2018 Date of Communication: Not Applicable
Index Number: 9100.00-00, 1362.01-03,
1361.05-00 Person To Contact:
------------------------------- --------------------------, ID No. ----------------
----------------------------------------- -----------------
------------------------------------------- Telephone Number:
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Refer Reply To:
CC:PSI:03
PLR-105399-18
Date:
June 19, 2018

LEGEND

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

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

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

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

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

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

D4 = ---------------------------

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

    This letter responds to a letter dated January 2, 2018, and subsequent

information, 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 Sub was formed on D1 and elected to be

an S corporation on D2. X was formed under the laws of State on D3 and elected to be
an S corporation effective D4. Also on D4, the shareholders of Sub contributed all of its
stock to X, so that X became the sole shareholder of Sub. X represents that it intended
to elect to treat Sub as a QSub. However, X failed to timely file Form 8869, Qualified
Subchapter S Subsidiary Election, for Sub.

                              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 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.

                                  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 D4. 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 representatives.

   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: ___________________________________
                                 Caroline E. Hay
                                 Assistant to the Branch Chief, Branch 3
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

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

cc: