Parent receives 120 days to make late QSub election

Plain-English summary

An S corporation owned all of a subsidiary and intended to elect qualified subchapter S subsidiary status for it, but failed to timely file Form 8869. The IRS concluded that the requirements for regulatory-election relief under section 301.9100-3 were met. It granted the parent 120 days from the ruling date to file Form 8869 with the requested effective date. The ruling did not determine whether the parent was otherwise a valid S corporation or whether the subsidiary was otherwise eligible for QSub status.

Ruling snapshot

• Question: May the S corporation make a late QSub election for its wholly owned subsidiary?
• Outcome: Yes, with 120 days to file Form 8869.
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 201608002                                              Third Party Communication: None
Release Date: 2/19/2016                                        Date of Communication: Not Applicable
Index Number: 1361.05-00, 9100.00-00
                                                               Person To Contact:
-----------------------------------------                      ----------------, ID No. -----------------
----------------------                                         Telephone Number:
----------------------------                                   ---------------------
-----------------------------------------                      Refer Reply To:
                                                               CC:PSI:B01
                                                               PLR-117874-15
                                                               Date:
                                                               November 16, 2015


LEGEND

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

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

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

Date 1            =        ------------------------

Date 2            =        -------------------------


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

      This responds to a letter dated May 20, 2015 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 elect to treat Sub as a qualified
subchapter S subsidiary (QSub) under §1361(b)(3) of the Internal Revenue Code.

FACTS

       According to the information submitted, X was incorporated under the laws of
State and elected to be treated as an S corporation effective Date 1. X represents that
it owns 100% of Sub and intended to elect to treat Sub as a QSub effective Date 2.
However, X failed to timely file Form 8869, Qualified Subchapter S Subsidiary Election.

LAW AND ANALYSIS


PLR-117874-15                                2

        Section 1361(b)(3)(A) 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 any 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.

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

       Section 1.1361-3(a)(6) provides that an extension of time to make a QSub
election may be available 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
6 months except in the case of a taxpayer who is abroad), under all subtitles of the
Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines
the term “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.

        Sections 301.9100-1 through 301.9100-3 provide the standards the
Commissioner will use to determine whether to grant an extension of time to make the
election. 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
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 to establish to the
satisfaction of the Commissioner that (1) the taxpayer acted reasonably and in good
faith, and (2) granting relief will not prejudice the interests of the government.

CONCLUSION

       Based solely on the information submitted and the representations made, we
conclude that the requirements of § 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 elect to treat Sub
as a QSub, effective Date 2. This election should be made for Sub by filing Form 8869
with the appropriate service center, with a copy of this letter attached. A copy is
enclosed for that purpose.


PLR-117874-15                                    3

       Except as specifically set forth above, 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 concerning
whether X is a valid S Corporation or whether Sub is eligible to be QSub.

      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.

       Pursuant to a power of attorney on file with this office, a copy of this letter is
being sent to X's authorized representative.

                                    Sincerely,

                                    Associate Chief Counsel
                                    (Passthroughs & Special Industries)


                                    Joy C. Spies
                                    By: Joy C. Spies
                                    Senior Technician Review, Branch 1
                                    Office of the Associate Chief Counsel
                                    (Passthroughs & Special Industries)


Enclosures (2)

       Copy of this letter
       Copy of this letter for section 6110 purposes

cc: