IRS grants extra time for a QSub election

Plain-English summary

An S corporation acquired all the stock of a subsidiary and intended to treat it as a qualified subchapter S subsidiary, or QSub, from the acquisition date. It failed to file Form 8869 on time because of inadvertence. The parent represented that it had continued filing as an S corporation and that the subsidiary had consistently filed as a QSub. The IRS found that the requirements for discretionary filing relief under Treasury Regulation Section 301.9100-3 were met. It granted 120 days from the ruling date to file the QSub election effective as of the intended date, without ruling on whether the parent was a valid S corporation or the subsidiary was otherwise eligible.

Ruling snapshot

• Question: Could the S corporation receive additional time to make a late QSub election for its wholly owned subsidiary?
• Outcome: Approved.
• 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: 202127032
Release Date: 7/9/2021

Third Party Communication: None
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:03
PLR-124554-20

Date:
April 07, 2021

Legend

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

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

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

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

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

Date 3 = ---------------------------

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

This letter responds to a letter dated October 23, 2020, 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).

PLR-124554-20 2

FACTS

The information submitted provides that X was formed under the laws of State on
Date 1, and elected to be treated as an S corporation effective Date 2. On Date 3, X
acquired all of the stock of Sub. X represents that, at all times on and after Date 3, X
owned all of the outstanding stock of Sub and intended to elect to treat Sub as a QSub
effective Date 3. However, due to inadvertence, X failed to timely file Form 8869,
Qualified Subchapter S Subsidiary Election, for Sub.

X represents that it has filed consistently with being an S corporation and that
Sub filed consistently as a QSub since Date 3.

LAW AND ANALYSIS

Section 1361(a) provides that the term “S corporation” means, with respect to
any taxable year, a small business corporation for which an election under § 1362(a) is
in effect for the year.

Section 1361(b)(1) defines a “small business corporation” as a domestic
corporation which is not an ineligible corporation and which does not (A) have more
than 75 shareholders, (B) have as a shareholder a person (other than an estate, a trust
described in § 1361(c)(6)) who is not an individual, (C) have a nonresident alien as a
shareholder, and (D) have more than one class of stock.

Section 1361(b)(3)(A) generally provides that a qualified subchapter S subsidiary
shall not be treated as a separate corporation, and all assets, liabilities, and items of
income, deduction, and credit of a qualified subchapter S subsidiary 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 qualified subchapter S subsidiary as a domestic
corporation that 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 qualified subchapter S subsidiary.

Section 1.1361-3(a) of the Income Tax Regulations provides the time and
manner of making a qualified subchapter S subsidiary election. 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 an election is Form 8869, Qualified Subchapter S Subsidiary
Election.

Section 1.1361-3(a)(6) provides that an extension of time to make a qualified
subchapter S subsidiary election may be available under procedures applicable under
§§ 301.9100-1 and 301.9100-3.

PLR-124554-20 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) defines the term “regulatory election” as
an election whose due date is prescribed by a regulation published in the Federal
Register or a revenue ruling, revenue procedure, notice, or announcement published in
the Revenue Bulletin.

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 (i) the
taxpayer acted reasonably and in good faith, and (ii) the grant of relief will not prejudice
the interests of the Government.

CONCLUSION

Based 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 one hundred twenty (120) days from the date of this letter to elect to
treat Sub as a QSub, effective Date 3. The election should be made by filing Form
8869, Qualified Subchapter S Subsidiary Election, with the appropriate service center,
and a copy of this letter should be attached to the election.

Except for the specific ruling above, we express or imply no opinion concerning
the federal tax consequences of the facts described above 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. Section 6110(k)(3) of
the Code provides that 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.

PLR-124554-20 4

Under a Power of Attorney on file with this office, we are sending a copy of this
letter to your authorized representatives.

Sincerely,

Associate Chief Counsel
(Passthroughs & Special Industries)

By: ________
Adrienne Mikolashek
Branch Chief, Branch 3
Office of Associate Chief Counsel
(Passthroughs & Special Industries)

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

cc: