Late QSub elections granted for three subsidiaries

Plain-English summary

An S corporation acquired all the stock of three subsidiaries and intended to treat each as a qualified subchapter S subsidiary from its respective acquisition date. It inadvertently failed to file the three Form 8869 elections, although the parent and subsidiaries consistently reported all tax items as if QSub treatment applied. The IRS found that the regulatory relief standards were satisfied and granted 120 days to file all three elections with the intended effective dates. The ruling does not determine whether the parent or subsidiaries otherwise meet the statutory eligibility requirements.

Ruling snapshot

• Question: May the S corporation make late QSub elections for three wholly owned subsidiaries?
• Outcome: Approved, with 120 days to file Forms 8869
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202521003 Third Party Communication: None
Release Date: 5/23/2025 Date of Communication: Not Applicable
Index Numbers: 1361.00-00, 1361.05-00, Person To Contact:
9100.00-00 ------------------, ID No. -----------------
Telephone Number:
--------------- --------------------
---------------------------------------------- Refer Reply To:
-------------------------------- CC:PT&E:B03
--------------------------- PLR-114428-24;
------------------------------ PLR-122423-24;
PLR-122424-24
Date:
February 24, 2025

LEGEND---------------------------------------------

X = ------------------------------
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Y1 = ------------------------------
----------------------
Y2 = ------------------------------
-----------------------
Y3 = ------------------------------
------------------------------
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State = --------
Date 1 = ------------------
Date 2 = ----------------------
Date 3 = --------------------------
Date 4 = --------------------------
Date 5 = -------------------------

                                          2

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

    This letter responds to a letter dated August 5, 2024, submitted on behalf of X by

its authorized representatives, requesting relief under §301.9100-3 of the Procedure
and Administration Regulations to make a late election for Y1, Y2, and Y3 under §
1361(b)(3) of the Internal Revenue Code (Code).

                                      FACTS

   According to the information submitted, X is a corporation organized under the

laws of State and made an election to be an S Corporation effective Date 2.

  Y1 is a corporation organized under the laws of State on Date 1. X acquired a

100 percent interest in Y1 on Date 3. X represents that it intended for Y1 to be treated
as a qualified subchapter S Subsidiary (QSub) effective Date 3. However, due to
inadvertence, X failed to timely file a QSub election on behalf of Y1.

   Y2 is a corporation organized under the laws of State on Date 4. X acquired a

100 percent interest in Y2 on Date 4. X represents that it intended for Y2 to be treated
as a QSub effective Date 4. However, due to inadvertence, X failed to timely file a QSub
election on behalf of Y2.

   Y3 is a corporation organized under the laws of State on Date 5. X acquired a

100 percent interest in Y3 on Date 5. X represents that it intended for Y3 to be treated
as a QSub effective Date 5. However, due to inadvertence, X failed to timely file a QSub
election on behalf of Y3.

   X represents that its failure to file QSub elections for Y1, Y2, and Y3 was

inadvertent and not the result of tax avoidance or retroactive tax planning. X further
represents both it and Y1, Y2, and Y3 filed tax returns and reported all tax items
consistent with the tax treatment of Y1, Y2, and Y3 as QSubs for all relevant years. X,
Y1, Y2, and Y3 have agreed to make any adjustments required by the Service
consistent with the treatment of Y1, Y2, and Y3 as QSubs.

                                LAW AND ANALYSIS

   Section 1361(b)(3)(A) provides that, except as provided in regulations prescribed

by the Secretary, for purposes of the Code (i) a corporation which 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 the term “QSub” means any domestic

corporation which is not an ineligible corporation (as defined in § 1361(b)(2)), if (i) 100
percent of stock of such corporation is held by the S corporation, and (ii) the S
corporation elects to treat such corporation as a QSub.

PLR-114428-24; 122423-24 ;122424-24 3

    Section 1.1361-3(a)(1) 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.

   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 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 a “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 Internal Revenue Bulletin.

  Section 301.9100-2 provides the rules governing automatic extensions of time for

making certain elections.

   Section 301.9100-3 sets forth the standards the Commissioner will use to

determine whether to grant an extension of time for regulatory elections that do not
meet the requirements of § 301.9100-2. Under § 301.9100-3, a request for relief 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 (1) the
taxpayer acted reasonably and in good faith, and (2) the grant of relief will not prejudice
the interests of the Government.

                                  CONCLUSION

    Based solely upon 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
Form 8869, Qualified Subchapter S Subsidiary Election, with the appropriate service
center on behalf of Y1, Y2,and Y3, effective Date 3, Date 4,and Date 5, respectively. A
copy of this letter should be attached to the Forms 8869.

   Except as expressly provided herein, we express or imply no opinion concerning

the federal income tax consequences of the facts under any other provision of the Code
and the regulations thereunder. Section 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. Specifically, we express or imply no opinion on
whether X meets the definition of an S Corporation under § 1361(b)(1) or whether Y1,
Y2, and Y3 meet the definition of a QSub under § 1361(b)(3).

PLR-114428-24; 122423-24 ;122424-24 4

   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 requested ruling, it is subject to verification on examination.

  This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of

the Code provides that it may not be used or cited as precedent.

    Pursuant to a power of attorney on file with this office, we are sending a copy of

this letter to your authorized representatives.

                                          Sincerely,

                                          Jeffrey Erickson
                                          Associate Chief Counsel
                                          (Passthroughs, Trusts, and Estates)


                                 By:      ----------------------------------------------------
                                          Christiaan T. Cleary
                                          Senior Technician Reviewer, Branch 1
                                          Office of Associate Chief Counsel
                                          (Passthroughs, Trusts, and Estates)

Enclosure: ----------------------------------------------------

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