PLR 9952061: Parent receives more time for three QSUB elections

Plain-English summary

An S corporation acquired all the stock of three subsidiaries and intended to elect qualified subchapter S subsidiary treatment from the acquisition date. It missed the election deadline. The IRS found that the requirements for late election relief were met and gave the parent 60 days from the letter date to file the three elections under Notice 97-4. The ruling did not decide whether the parent otherwise qualified as an S corporation or whether any subsidiary otherwise qualified as a QSUB.

Ruling snapshot

• Question: May the parent file late QSUB elections for its three subsidiaries, effective on their acquisition date?
• Outcome: Approved for a 60-day extension; substantive eligibility was left open.
• Key authorities: IRC § 1361(b)(3)(B); Treas. Reg. § 301.9100-3; Notice 97-4.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 9100.00-00 Washington, DC 20224

Person to Contact:

Telephone Number:
Number: 199952061
Release Date: 12/30/1999
Refer Reply To:
CC:DOM:P&SI:1 PLR-111413-99
Date:
October 05, 1999

Legend

P
=

Sub1 =

Sub2 =

Sub3 =

State =

D1 =

D2 =

This responds to the letter dated September 9, 1999, and prior correspondence, submitted on behalf of P, requesting an extension of time pursuant to § 301.9100-3 of the Procedure and Administration Regulations to elect to treat three subsidiaries as qualified subchapter S subsidiaries (QSUBs) under § 1361(b)(3)(B) of the Internal Revenue Code.

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FACTS

According to the information submitted, P was incorporated under State law on D1, and elected subchapter S status, effective D1. On D2, P acquired all of the outstanding stock of Sub1, Sub2, and Sub3. P intended to elect to treat Sub1, Sub2, and Sub3 as QSUBs as of D2, but failed to timely file the election.

LAW AND ANALYSIS

Section 1361(b)(3)(B) defines the term “qualified subchapter S subsidiary” as a domestic corporation which is not an ineligible corporation, if 100 percent of the stock of the corporation is owned by the S corporation, and the S corporation elects to treat the corporation as a QSUB.

On January 13, 1997, the Service published Notice 97-4, 1997-1 C.B. 351, providing a temporary procedure for making a QSUB election. Under Notice 97-4, a taxpayer makes a QSUB election with respect to a subsidiary by filing a Form 966, subject to certain modifications, with the appropriate service center. The election may be effective on the date the Form 966 is filed or up to 75 days prior to the filing of the form, provided that the date is not before the parent’s first taxable year beginning after December 31, 1996, and that the subsidiary otherwise qualifies as a QSUB for the entire period for which the retroactive election is in effect.

Under § 301.9100-1(c), 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, if the taxpayer demonstrates to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and that granting the relief will not prejudice the interests of the government. Section 301.9100-1(b) defines the term “regulatory election” as including an election whose deadline is prescribed by a notice published in the Internal Revenue Bulletin.

Sections 301.9100-2 and 301.9100-3 provide the standards the Commissioner will use to determine whether to grant an extension of time to make an election. Section 301.9100-1(a). Section 301.9100-2 provides automatic extensions 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.

Requests for relief under § 301.9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good faith, and that granting relief will not prejudice the interests of the government. Section 301.9100-3(a).

CONCLUSION

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Based solely on the facts submitted and representations made, we conclude that the requirements of § 301.9100-3 have been satisfied. Accordingly, P is granted an extension of time of sixty (60) days from the date of this letter to elect to treat its subsidiaries, Sub1, Sub2, and Sub3, as QSUBs, effective D2. The elections should be made by following the procedure set forth in Notice 97-4. A copy of this letter should be attached to the elections.

Except as specifically set forth above, no opinion is expressed or implied concerning the federal income tax consequences of the facts described above under any other provision of the Code. Specifically, no opinion is expressed concerning whether P otherwise satisfies the S corporation eligibility requirements or whether Sub1, Sub2, or Sub3 otherwise qualify as QSUBs for federal tax purposes.

This ruling is directed only to the taxpayer on whose behalf it was requested.
Section 6110(k)(3) provides that it may not be used or cited as precedent.

Pursuant to the Power of Attorney on file with this office, the original of this letter is being sent to the taxpayer’s representative and a copy is being sent to the taxpayer.

Sincerely,

Signed/Paul F. Kugler

PAUL F. KUGLER
Assistant Chief Counsel
(Passthroughs and Special Industries)

Enclosures (2)
Copy of this letter
Copy for §6110 purposes