S corporation receives 120 days to file a late QSub election

Plain-English summary

An S corporation intended to elect qualified subchapter S subsidiary treatment for a wholly owned subsidiary but failed to file Form 8869 on time. It reported all relevant tax years consistently with the subsidiary having QSub status from the intended effective date. The corporation represented that it acted reasonably and in good faith, did not use hindsight, and would not prejudice the government's interests. The IRS found the regulatory-relief requirements satisfied and granted 120 days to file Form 8869 with the requested retroactive effective date.

Ruling snapshot

• Question: May an S corporation file a late QSub election for a subsidiary when its returns consistently treated the election as effective?
• Outcome: approved, with a 120-day extension to file Form 8869
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202005015 Third Party Communication: None
Release Date: 1/31/2020 Date of Communication: Not Applicable
Index Number: 9100.31-00; 1362.01-03
Person To Contact:
----------------------------- --------------------, ID No. ------------------
------------------------------------- Telephone Number:
---------------------- ----------------------
-------------------------------------------- Refer Reply To:
CC:PSI:03
PLR-115309-19
Date:
October 24, 2019

Legend

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

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

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

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

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

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

  This letter responds to a letter dated June 24, 2019, and subsequent

correspondence, submitted on behalf of X requesting that the Service grant X an
extension of time under § 301.9100-3(c) 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, a State corporation, elected to be an S

corporation effective Date 1. X represents that it intended to elect to treat Sub as a
QSub effective Date 2. However, X failed to timely file Form 8869, 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 Date 2.

PLR-115309-19 2

    X represents that it has acted reasonably and in good faith, that granting relief

will not prejudice the interests of the government, and that it is not using hindsight in
making the election.

                              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-115309-19 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 120 days from the date of this letter to elect to treat Sub as a QSub,
effective Date 2. 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.

   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.

  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 representative.

                                              Sincerely,

                                              Associate Chief Counsel
                                              (Passthroughs and Special Industries)



                                       By:    ______________________________
                                              Richard T. Probst
                                              Senior Technician Reviewer, Branch 3
                                              Office of Associate Chief Counsel
                                              (Passthroughs & Special Industries)

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

cc: