S corporation received 120 days for a late QSub election

Plain-English summary

An S corporation wholly owned one subsidiary, which in turn wholly owned a second subsidiary. The parent intended to treat the lower-tier subsidiary as a qualified subchapter S subsidiary from the parent's formation date but did not timely file Form 8869. It represented that all relevant returns consistently treated the subsidiary as a QSub, that it acted in good faith, and that relief would not prejudice the government. The IRS found the regulatory relief requirements satisfied and granted 120 days to file the election with the intended effective date. It did not rule on whether the parent was a valid S corporation or the subsidiary was otherwise eligible to be a QSub.

Ruling snapshot

• Question: Could the S corporation make a late QSub election for its indirectly owned subsidiary?
• Outcome: Approved, with 120 days to file Form 8869 effective as of the requested date.
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                     Department of the Treasury
                                                             Washington, DC 20224

Number: 201929007                                            Third Party Communication: None
Release Date: 7/19/2019                                      Date of Communication: Not Applicable
Index Number: 1361.00-00, 1361.05-00
                                                             Person To Contact:
-----------------------                                      ------------------, ID No. ----------------
---------------------------------------------                Telephone Number:
---------------------------------                            ----------------------
--------------                                               Refer Reply To:
-------------------------------------                        CC:PSI:01
                                                             PLR-126629-18
                                                             Date:
                                                             April 08, 2019




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

Sub1 = --------------------------------------------------------------------
       ------------------------

Sub2 = --------------------------------------------------------
       ------------------------

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

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



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

This letter responds to a letter dated August 30, 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 Sub2 as a qualified
subchapter S subsidiary (“QSub”) under § 1361(b)(3) of the Internal Revenue Code
(Code).

                                                     Facts

The information submitted discloses that X was formed under the laws of State on D1
and elected to be an S corporation effective D1. X wholly owns Sub1, which wholly
owns Sub2. X represents that it intended to elect to treat Sub2 as a QSub effective D1.
However, X failed to timely file Form 8869, Qualified Subchapter S Subsidiary Election,
for Sub2. X represents that it has filed its tax returns for all of the relevant tax years

PLR-126629-18                                 2

consistent with Sub2 being a QSub since D1, and that X has acted in good faith. Finally,
X represents that granting relief will not prejudice the government.

                                     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-126629-18                                 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 Sub2 as a QSub,
effective D1. The election should be made for Sub2 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 Sub2 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,



                                   By:Laura Fields
                                      Laura Fields
                                      Senior Technician Reviewer, Branch 1
                                      (Passthroughs and Special Industries)

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


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