Successor receives extension for late QSub election

Plain-English summary

An S corporation intended to elect qualified subchapter S subsidiary status for a wholly owned subsidiary but failed to file Form 8869. A later parent corporation acquired the first S corporation in a transaction represented to be an F reorganization and requested relief as its successor. The parent represented that the missed election was inadvertent, did not involve tax avoidance or retroactive planning, and that all returns had treated the subsidiary as a QSub from the intended date. The IRS found that the regulatory relief standards were met and granted 120 days to file Form 8869 effective on that date. The ruling did not determine the validity of the companies' S corporation or QSub status, the subsidiary's eligibility, or the represented reorganization.

Ruling snapshot

• Question: May the successor parent make a late QSub election for its subsidiary effective on the originally intended date?
• Outcome: Approved, with 120 days to file Form 8869
• 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: 202540003 Third Party Communication: None
Release Date: 10/3/2025 Date of Communication: Not Applicable
Index Number: 9100.00-00, 1361.00-00,
1361.05-00 Person To Contact:
--------------------, ID No. -----------------
------------------------------ Telephone Number:
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---------------------- Refer Reply To:
----------------------------- CC:PT&E:B01
---------------------------------------------------- PLR-101135-25
Date:
June 23, 2025

                                             LEGEND

X = -------------------------------------------------------------------------
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Y = -------------------------------------------------------------------------
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Sub = -------------------------------------------------------------------------
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State 1 = ------------------
State 2 = ---------
State 3 = -------------
Date 1 = ----------------
Date 2 = ------------------
Date 3 = --------------------------
Date 4 = --------------------------
Date 5 = --------------------------
PLR-101135-25 2

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

This letter responds to a letter dated December 30, 2024, and subsequent
correspondence, submitted on behalf of X, requesting an extension of time under
§ 301.9100-3 of the Procedure and Administration Regulations for X to file a late
election to treat Sub as a qualified subchapter S subsidiary (QSub) under § 1361(b)(3)
of the Internal Revenue Code (the Code).

                                    FACTS

According to the information submitted, Y was incorporated under the laws of State 1 on
Date 1 and elected to be treated as an S corporation effective Date 1.

On Date 2, Sub was incorporated under the laws of State 2. As of Date 2, Y owned all
the outstanding stock of Sub and intended to elect to treat Sub as a QSub effective
Date 2. However, due to inadvertence, Y failed to file Form 8869, Qualified Subchapter
S Subsidiary election.

On Date 3, X was incorporated under the laws of State 3 and filed Form 2553, Election
by a Small Business Corporation, to elect treatment as an S corporation. On Date 4, as
part of what X represents was a reorganization under § 368(a)(1)(F), Y’s shareholders
contributed all the stock of Y to X, thereby causing Y to become a wholly owned
subsidiary of X. Subsequently, X filed a Form 8869, Qualified Subchapter S Subsidiary
Election, to treat Y as a QSub effective Date 4. On Date 5, Y and Sub converted to
State 3 limited liability companies under the laws of State 3.

X, as Y’s successor, represents that its failure to make a QSub election for Sub was
inadvertent and not the result of tax avoidance or retroactive tax planning. X further
represents that all tax returns since Date 2 were filed consistent with Sub being treated
as a QSub effective Date 2.

                             LAW AND ANALYSIS

Section 1361(b)(3)(A) of the Code generally 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, if 100 percent of the stock of the corporation is owned 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 prescribes the time and manner for
making an election to be classified as a QSub. Section 1.1361-3(a)(4) provides that an
election may be effective up to two months and 15 days prior to the date the election is
PLR-101135-25 3

filed or not more than 12 months after the election is filed. The proper form for making
the election is Form 8869, Qualified Subchapter S Subsidiary Election.

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 (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
301.9100-1(b) provides that the term “regulatory election” includes 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 provides the standards the Commissioner will use to determine
whether to grant an extension of time for regulatory extensions 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 that (2) 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 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 elect to treat Sub as a QSub, effective Date 2. The election should
be made by filing Form 8869, Qualified Subchapter S Subsidiary Election, with the
appropriate service center, and a copy of this letter should be attached to the Form
8869.

Except as expressly provided herein, we express or imply no opinion concerning the
federal tax consequence of the facts described above under any other provision of the
Code. Specifically, we express or imply no opinion concerning whether X is a valid S
corporation, whether Y was a valid S corporation or QSub, whether Sub is eligible to be
a QSub, or the validity of the reorganization under § 368(a)(1)(F) or its tax
consequences.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.
PLR-101135-25 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 ruling request, it is subject to verification on examination.

In accordance with the power of attorney on file with this office, we are sending a copy
of this letter to X’s authorized representative.

                                                            Sincerely,

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


                                                  By:       ____________/s/_______________
                                                            Jennifer N. Keeney
                                                            Senior Counsel, Branch 1
                                                            Office of Associate Chief Counsel
                                                            (Passthroughs, Trusts, and Estates)

Enclosure
Copy of letter for § 6110 purposes

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