Late QSub election allowed under 9100 relief

Plain-English summary

An S corporation bought another corporation as a wholly owned subsidiary and
meant to treat it as a qualified subchapter S subsidiary (a "QSub"), which lets
the IRS ignore the subsidiary as a separate corporation and fold its income and
assets into the parent. To do that, the parent had to file Form 8869 on time,
but it never did. The parent asked the IRS for an extension of time to make the
QSub election under the regulation that allows late elections (Treas. Reg. §
301.9100-3). The IRS agreed. Because the parent acted reasonably and in good
faith, filed its returns all along as if the QSub election were in place, and
granting relief would not hurt the government, the IRS gave it 120 days to file
a proper Form 8869 effective back to the purchase date. This matters because
missing a routine election deadline does not have to be fatal: if you can show
good faith and no harm to the Treasury, the IRS can let you file late.

Ruling snapshot

• Question: May a parent S corporation that missed the deadline to elect QSub treatment for a purchased subsidiary get an extension of time to file the election?
• Outcome: approved (120-day extension granted)
• 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: 202319006                                               Third Party Communication: None
 Release Date: 5/12/2023                                         Date of Communication: Not Applicable
 Index Number: 9100.00-00
                                                                 Person To Contact:
 ------------------------------                                  ----------------------, ID No. -----------------
 --------------------------                                      Telephone Number:
 --------------------------------------                          --------------------
 -----------------------------                                   Refer Reply To:
  ------------------------------------------------------------   CC:PSI:B01
 --------                                                        PLR-115566-22
                                                                 Date:
                                                                 February 09, 2023




Legend

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

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

Date1 =          -------------------

Date2 =          -------------------

Date3 =          ------------------

Date4 =          -----------------------

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


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

This letter responds to a letter dated August 12, 2022, submitted on behalf of X by its
authorized representative, requesting an extension of time under § 301.9100-3 of the
Procedure and Administration Regulations to file an election on behalf of Sub to be a
qualified subchapter S subsidiary (“QSub”) under § 1361(b)(3)(B)(ii) of the Internal
Revenue Code (“Code”) and § 1.1361-3 of the Income Tax Regulations.
PLR-115566-22                                   2

                                             Facts

According to the information submitted and representations within, X was incorporated
under the laws of State on Date2 and elected to be taxed as an S corporation as of that
date.

Sub was incorporated on Date1 and was subsequently purchased by X on Date3 as a
wholly owned subsidiary as of that date. X represents that it intended to elect to treat
Sub as a QSub effective Date3. However, X failed to timely file Form 8869, Qualified
Subchapter S Subsidiary Election, for Sub. X was subsequently purchased on Date4,
terminating its S election. X represents that it has filed its tax returns for all relevant tax
years consistent with Sub being a QSub since Date3 until the termination of its S
election on Date4, and that X has acted in good faith.

                                      Law and Analysis

Section 1361(b)(3)(A) of the Internal Revenue Code provides that a QSub shall not be
treated as a separate corporation, and 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 a QSub as a domestic corporation which 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. Section 1.1361-3(a)(2) provides that an S corporation makes a
QSub election with respect to a subsidiary by filing a 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 procedures applicable under §§ 301.9100-1 and 301.9100-3.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a
regulatory election, or a statutory election (but not more than 6 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 301.9100-2 provides an automatic extension of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2.
PLR-115566-22                                 3

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 the representations made, we conclude that X
has satisfied the requirements of §§ 301.9100-1 and 301.9100-3 with respect to the
QSub election for Sub. Accordingly, we grant X an extension of time of 120 days from
the date of this letter to file a properly executed Form 8869 for Sub with the appropriate
service center effective Date3 until the termination of X’s S election on Date4. A copy of
this letter should be attached to the elections.


Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter. Specifically, we express or imply no opinion as to whether X is a valid S
corporation or whether Sub is eligible to be a QSub.

The rulings contained in this letter are based upon information and representations
submitted by X and accompanied by a penalty of perjury statement executed by the
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 who requested it. According to § 6110(k)(3),
this ruling may not be used or cited as precedent.

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: _______________________
                                                  Joyce C. Spies
                                                  Senior Technician Reviewer, Branch 1
                                                  (Passthroughs & Special Industries)
PLR-115566-22             4


Enclosures
Copy for §6110 purposes