IRS grants an S corporation 120 days to make late QSub elections for three subsidiaries

Plain-English summary

An S corporation that owns 100% of a subsidiary can elect to treat that subsidiary as a "qualified subchapter S subsidiary" (QSub) under § 1361(b)(3). A QSub is ignored as a separate corporation, so its assets, income, and deductions are treated as the parent S corporation's. The election is made by filing Form 8869. Here an S corporation intended to make QSub elections for three subsidiaries effective particular dates but failed to file the forms on time. It asked the IRS for more time under Treas. Reg. § 301.9100-3, which lets the Commissioner grant late-election relief when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. The IRS concluded those standards were met and granted 120 days to file Form 8869 for each of the three subsidiaries, effective the originally intended dates. The IRS noted that granting the extension does not itself decide whether the taxpayer actually qualifies to make the elections.

Ruling snapshot

• Question: Will the IRS grant an S corporation more time under § 301.9100-3 to make late QSub elections for three subsidiaries?
• Outcome: Approved (120-day extension granted for all three)
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3, 301.9100-1, 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                      Department of the Treasury
                                                               Washington, DC 20224

 Number: 202225001                                             Third Party Communication: None
 Release Date: 6/24/2022                                       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:03
 ---------------------------                                   PLR-100319-22
                                                               PLR-100320-22
                                                               PLR-100321-22
                                                               Date:
          Re: ---------------------------------------          March 31, 2022




Legend

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

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

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

Sub3       =     --------------------------------------------------------------------
                 -----------------------

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

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

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

Date 3 =         ------------------
PLR-100319-22                                  2


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

       This letter responds to a letter dated December 13, 2021, 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 each of Sub1,
Sub2, and Sub3 as a qualified subchapter S subsidiary (QSub) under § 1361(b)(3) of
the Internal Revenue Code (Code).

                                            Facts

        Based on the information submitted, X was incorporated under the laws of State.
X elected to be treated as an S corporation for federal tax purposes. X intended to elect
to treat each of Sub1, Sub2, and Sub3 as a QSub effective Date 1, Date 2, and Date 3,
respectively. However, X failed to timely file Form 8869, Qualified Subchapter S
Subsidiary Election, for each of Sub1, Sub2, and Sub3.

                                     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) provides that, for purposes of § 1361(b)(3), the term
"qualified subchapter S subsidiary" means any domestic corporation that is not an
ineligible corporation (as defined in § 1361(b)(2)), if (i) 100 percent of the stock of the
corporation is held by an S corporation, and (2) the S corporation elects to treat the
corporation as a QSub.

       Section 1.1361-3(a)(1) through (a)(3) of the Income Tax Regulations 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. An S corporation may elect to treat an eligible subsidiary as a
QSub by filing a completed form to be prescribed by the IRS. A QSub election may be
made by the S corporation parent at any time during the taxable year.

     Section 1.1361-3(a)(4) provides that an election may be effective up to two
months and 15 days prior to the date of the election is filed and cannot be more than 12
months after the date the election is filed.

       Section 1.1361-3(a)(6) provides that an extension of time to make a QSub
election may be available under the procedures applicable under §§ 301.9100-1 and
301.9100-3.
PLR-100319-22                                3


       Sections 301.9100-1 through 301.9100-3 provide the standards that 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 rules for requesting 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 subject to § 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 solely on the facts submitted and representations made, we conclude that
X has satisfied the requirements of §§ 301.9100-1 and 301.9100-3. As a result, X is
granted an extension of time of 120 days from the date of this letter to elect to file Form
8869 with the appropriate service center to elect to treat each of Sub1, Sub2, and Sub3,
as a QSub, effective Date 1, Date 2, and Date 3, respectively. A copy of this letter
should be attached to each Form 8869.

       Except as specifically set forth 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 and the regulations thereunder. In addition, § 301.9100-1(a) provides that the
granting of an extension of time for making an election is not a determination that the
taxpayer is otherwise eligible to make the election.

      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-100319-22                                  4

        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,


                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)



                                   By:
                                         Margaret Burow
                                         Senior Counsel, Branch 3
                                         Office of the Associate Chief Counsel
                                         (Passthroughs & Special Industries)



Enclosure
      Copy for § 6110 purposes



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