9100 relief to make a late QSub election after the subsidiary was fixed to qualify as a corporation

Plain-English summary

An S corporation formed a wholly owned LLC subsidiary and tried to elect to treat it as a qualified subchapter S subsidiary (QSub), which lets the parent ignore the subsidiary as a separate entity and fold its tax items into the parent's. It filed the QSub election (Form 8869), but the election was ineffective: a QSub must be a corporation, and the LLC was not treated as a corporation when the election was made. The subsidiary later filed a check-the-box election (Form 8832) to be taxed as an association (a corporation) retroactive to the intended date, curing that defect, and the parent then asked the IRS for "9100 relief," a discretionary extension under Treas. Reg. § 301.9100-3, to file the QSub election late. The IRS granted it, giving the parent 120 days from the date of the letter to file Form 8869 effective the originally intended date. Relief is available when the taxpayer acted reasonably and in good faith and granting it will not prejudice the government. The IRS expressly did not rule on whether the parent is a valid S corporation or whether the subsidiary actually qualifies as a QSub. This matters because QSub status affects how a corporate group is taxed, and 9100 relief can rescue a missed or defective election.

Ruling snapshot

• Question: Should the S corporation get an extension of time under § 301.9100-3 to file a late QSub election for its subsidiary, effective the originally intended date?
• Outcome: Approved (9100-3 relief granted; 120 days to file Form 8869)
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3, 301.9100-1, 301.9100-3; Rev. Proc. 2009-41

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202152003 Third Party Communication: None
Release Date: 12/30/2021 Date of Communication: Not Applicable
Index Number: 9100.00-00, 1361.05-00
Person To Contact:
----------------------------- ----------------------------, ID No. --------------
-------------------------------------------------- Telephone Number:
------------------------------- --------------------
-------------------------------- Refer Reply To:
------------------------------- CC:PSI:B01
PLR-104565-21
Date:
August 26, 2021

                                                  LEGEND

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

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

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

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

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

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

This letter responds to a letter dated February 22, 2021, submitted on behalf of X by its
authorized representatives, 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).

                                                   Facts

The information submitted discloses that X was formed under the laws of State and
elected to be an S corporation effective Date 1. On Date 2, X formed a wholly owned
limited liability company, Sub. X intended to elect to treat Sub as a QSub effective Date
2 and in furtherance of that intent filed a Form 8869, Qualified Subchapter S Subsidiary
PLR-104565-21 2

Election. However, X discovered that its election to treat Sub as a QSub was ineffective
due to Sub's failure to meet all the requirements of § 1361(b)(3)(B) at the time the
election was made. Specifically, Sub was not a corporation, as defined by § 301.7701-
2(b) of the Income Tax Regulations, at the time the election was made. See § 1.1361-
3(a)(1). Sub has since filed a Form 8832, Entity Classification Election, pursuant to Rev.
Proc. 2009-41, 2009-39 I.R.B. 439, electing to treat Sub as an association taxable as a
corporation effective Date 2.

X represents that it has filed consistently with being an S corporation and that Sub has
filed consistently with being a QSub since Date 2.

                                 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)(1) provides that the corporation for which a QSub election is made
must meet all the requirements of § 1361(b)(3)(B) at the time the election is made and
for all periods for which the election is to be effective.

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 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
PLR-104565-21 3

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.

                                    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 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.

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.

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.
PLR-104565-21 4

Pursuant to the power of attorney on file with this office, we are sending a copy of this
letter to X's authorized representatives.

                               Sincerely,


                               Holly Porter
                               Associate Chief Counsel
                               (Passthroughs & Special Industries)


                                      Laura Fields
                             By: _____________________________

                               Laura Fields
                               Chief, Branch 1
                               Office of the Associate Chief Counsel
                               (Passthroughs & Special Industries)

Enclosure
Copy of Letter

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