S corporation received more time for two QSub elections

Plain-English summary

An S corporation wholly owned two subsidiaries and intended to elect qualified subchapter S subsidiary status for both. Because of inadvertence, it did not timely file Form 8869 for either subsidiary. The IRS concluded that the regulatory late-election standards were met and granted 120 days to file both forms with the intended effective date. The ruling did not decide whether the parent was a valid S corporation or whether either subsidiary was otherwise eligible for QSub status.

Ruling snapshot

• Question: Could the S corporation receive more time to file QSub elections for its two wholly owned subsidiaries?
• Outcome: approved
• 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: 202424005                                               Third Party Communication: None
Release Date: 6/14/2024                                         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-117849-23
--------------------------------------                          PLR-117850-23
                                                                Date:
                                                                March 15, 2024




                                                    LEGEND

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

Sub 1            = --------------------------------------------------
                   -----------------------

Sub 2                  --------------------------------------------------
                       -----------------------

State            = ---------


Date             = ------------------



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

This letter responds to a letter dated August 30, 2023, and subsequent correspondence,
submitted on behalf of X by its authorized representatives, requesting an extension of
time under § 301.9100-3 of the Procedure and Administrative Regulations to file
elections on behalf of Sub 1 and Sub 2 to elect for each to be a qualified subsidiary
(“QSub”) under § 1361(b)(3)(B)(ii) of the Internal Revenue Code (“Code”) and § 1.1361-
3 of the Income Tax Regulations.

PLR-117849-23                                 2

                                         FACTS

According to the information submitted and representations within, as of Date, X was
incorporated under the laws of State and represents it was a valid S corporation. X
wholly owns Sub 1 and Sub 2. X represents that it intended to elect to treat Sub 1 and
Sub 2 as QSubs effective Date. However, due to inadvertence, X failed to timely file
Form 8869, Qualified Subchapter S Subsidiary Election, for Sub 1 and Sub 2 effective
Date.

                                 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 the 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.

Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3 will be
granted when the taxpayer provides 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-117849-23                                 3

CONCLUSION

Based on the facts submitted and representations made, we conclude that the
requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a result, X is
granted an extension of time of 120 days from the date of this letter to file Forms 8869
with the appropriate service center to elect to treat Sub 1 and Sub 2 as QSubs effective
Date. A copy of this letter should be attached to each Form 8869.

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 either Sub 1 or Sub 2 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 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.

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 representatives.



                                         Sincerely,


                                         Holly Porter
                                         Associate Chief Counsel
                                         (Passthroughs & Special Industries)


                                         By:    ___________/s/_______________
                                         Joy C. Spies
                                         Senior Technician Reviewer, Branch 1
                                         Office of the Associate Chief Counsel
                                         (Passthroughs & Special Industries)

Enclosure
     Copy of letter for § 6110 purposes

PLR-117849-23                                     4

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