S corporation receives 120 days to make a late QSub election

Plain-English summary

An S corporation wholly owned one subsidiary, which in turn wholly owned a second subsidiary. The parent had elected to treat the first subsidiary as a qualified subchapter S subsidiary and intended the same treatment for the second subsidiary, but it did not timely file Form 8869 for the second election. The parent represented that its returns had consistently treated the second subsidiary as a QSub, that it acted in good faith, and that relief would not prejudice the government. The IRS found that the requirements for discretionary extension relief under Treas. Reg. § 301.9100-3 were satisfied. It granted the parent 120 days from the letter date to file Form 8869 and make the second subsidiary's QSub election effective as of the requested redacted date. 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 election to treat its indirectly owned subsidiary as a QSub effective on the originally intended date?
• Outcome: approved (the corporation received 120 days to file Form 8869)
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202019025 Third Party Communication: None
Release Date: 5/8/2020 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-119890-19
Date:
January 13, 2020

Legend

X = -------------------------
------------------------
Sub1 = --------------------------------------
-----
------------------------
Sub2 = --------------------------------------
-----------------------
Date 1 = -----------------
Date 2 = ----------------------
State = ----------

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

   This letter responds to a letter dated August 23, 2019, 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

and elected to be an S corporation effective Date 1. X wholly owns Sub1, which in turn
wholly owns Sub2. X made an election to treat Sub1 as a Qsub effective Date 2. X
represents that it intended to elect to treat Sub2 as a QSub effective Date 2. However,
X failed to timely file Form 8869, Qualified Subchapter S Subsidiary Election, for Sub2.

  X also represents that it has filed its tax returns for all of the relevant tax years

consistent with Sub2 being a QSub since Date 2, and that X has acted in good faith.

PLR-119890-19 2

Finally, X represents that granting relief will not prejudice the interests of 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-119890-19 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 one hundred twenty (120) days from the date of this letter to elect to
treat Sub2 as a QSub, effective Date 2. 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.

  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.

   Pursuant to the power of attorney on file with this office, we are sending a copy of

this letter to X’s authorized representative.

                                 Sincerely,

                                 Holly Porter
                                 Associate Chief Counsel
                                 (Passthroughs & Special Industries)

                                 By:
                                 Laura Fields
                                 Laura Fields
                                 Senior Technician Reviewer, Branch1
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosures (2)

  Copy of Letter
  Copy for 6110 purposes

cc: