S corporation gets 120 days to file late QSub election

Plain-English summary

An S corporation intended to elect qualified subchapter S subsidiary status for a wholly owned domestic subsidiary as of the subsidiary's incorporation date. It failed to file Form 8869 on time because of inadvertence but reported consistently with the intended QSub treatment. The IRS found that the requirements for discretionary filing relief under Treasury Regulation section 301.9100-3 were met. It granted the parent 120 days from the letter date to file Form 8869 and attach a copy of the ruling. The IRS did not rule on whether the parent was a valid S corporation or whether the subsidiary was otherwise eligible for QSub status.

Ruling snapshot

• Question: May 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, 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 201923025                                             Third Party Communication: None
Release Date: 6/7/2019                                        Date of Communication: Not Applicable
Index Number: 1361.00-00, 1361.05-00,
              9100.00-00                                      Person To Contact:
                                                              -----------------------, ID No. -------------------
--------------------------------------                        ---------------------------------------------------
-----------------------------                                 Telephone Number:
-----------------------------------------------               ----------------------
------------------------------------                          Refer Reply To:
                                                              CC:PSI:B01
                                                              PLR-127707-18
                                                              Date:
                                                              February 26, 2019

LEGEND:


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

Y                =     ---------------------------------------------------------------------------------------------
                       ---------------------------------

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

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

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


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

This letter responds to a letter dated September 14, 2018, 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 Y 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 was incorporated
under the laws of State and elected to be treated as an S corporation effective Date 1. Y
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 Y, and intended to elect to
treat Y as a QSub effective Date 2. However, due to inadvertence, X failed to file Form
PLR-127707-18                                2

8869, Qualified Subchapter S Subsidiary Election for Y. X further represents that it has
filed its tax returns consistent with Y being a QSub since Date 2.

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, Qualified
Subchapter S Subsidiary Election.

Section 1361-3(a)(6) provides that an extension of time to make a QSub election may
be available under procedures applicable under §§ 301.9100-1 and 301.9100-3.

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 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.

Section 301.9100-3(a) provides that requests for relief subject to § 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 (1) the
taxpayer acted reasonably and in good faith, and (2) the grant of relief will not prejudice
the interests of the Government.
PLR-127707-18                                  3


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 Y as a QSub,
effective Date 2. The election should be made by filing Form 8869 with the appropriate
service center within 120 days of the issuance of this letter, and a copy of this letter
should be attached to the election. A copy is enclosed for that purpose.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. Specifically, no opinion is expressed or implied concerning whether X is a
valid S corporation, or whether Y is eligible to be a QSub.

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 the 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.

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 sent to X’s authorized representatives.


                                       Sincerely,



                                       Holly Porter
                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)

                                       Laura C. Fields
                                       Laura C. Fields
                                       Senior Technician Reviewer, Branch 1
                                       (Passthroughs & Special Industries)


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

cc: