Late QSub election relief granted

Plain-English summary

An S corporation acquired all the stock of a subsidiary but did not timely file Form 8869 to elect qualified subchapter S subsidiary status. It represented that it intended QSub treatment and that both companies had consistently filed in accordance with that treatment since the acquisition. The IRS found that the regulatory relief requirements were satisfied and granted 120 days to file the election with retroactive effect. The ruling did not decide whether the parent was a valid S corporation or whether the subsidiary was otherwise eligible to be a QSub.

Ruling snapshot

• Question: May the S corporation file a late QSub election for its wholly owned subsidiary?
• Outcome: approved
• Key authorities: IRC §§ 1361(b)(3), 1362(a); 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: 201740013                                          Third Party Communication: None
Release Date: 10/6/2017                                    Date of Communication: Not Applicable
Index Number: 9100.00-00, 1361.05-00
                                                           Person To Contact:
-----------------------------------                        ----------------, ID No. ------------------
-------------------------------------                      Telephone Number:
---------------------------------------                    ------------------
----------------------------                               Refer Reply To:
                                                           CC:PSI:B01
                                                           PLR-111801-17
                                                           Date:
                                                           June 14, 2017




LEGEND

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

Y        =         ----------------------------------
--------------------------------------------

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

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

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



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

This responds to a letter dated March 30, 2017, submitted on behalf of X by X’s
authorized representative, requesting relief pursuant to § 301.9100-3 of the Procedure
and Administration Regulations that X be granted an extension of time to elect to treat Y
as a qualified subchapter S subsidiary (QSub) under section § 1361(b)(3) of the Internal
Revenue Code (the Code).

FACTS

According to the information submitted and representations within, X was incorporated
under the laws of State on Date 1. X elected to be treated as an S corporation effective
Date 1. Effective Date 2, X acquired all of the stock of Y, however a Form 8869,
Qualified Subchapter S Subsidiary Election, was not timely filed for Y.
PLR-111801-17                                2


X represents that it own 100% of Y and that it intended to treat Y as a QSub and that X
has filed consistently with being an S corporation and that Y has filed consistently as a
QSub since Date 2.

LAW AND ANALYSIS

Section 1362(a)(1) provides that except as provided in subsection (g), a small business
corporation may elect, in accordance with the provisions of this section, to be an S
corporation. Section 1362(a)(2) provides that an election under this subsection shall be
valid only if all persons who are shareholders in such corporation on the day on which
such election is made consent to such election.

Section 1361(b)(3)(A) generally provides that a Qualified subchapter S subsidiary shall
not be treated as a separate corporation and all assets, liabilities, and items of income,
deduction, and credit of a Qualified subchapter S subsidiary 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 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 Qualified subchapter S subsidiary .

Section 1.1361-3(a) of the Income Tax Regulations prescribes the time and manner for
making an election to be classified as a Qualified subchapter S subsidiary . 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, Qualified subchapter S
subsidiary Election.

Section 1361-3(a)(6) provides that an extension of time to make a Qualified subchapter
S subsidiary 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
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) 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.

Section 301.9100-2 provides the rules governing automatic extensions of time for
making certain elections.
PLR-111801-17                                  3

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 facts submitted and representations made, we conclude that the
requirements of § 301.9100-3 have been satisfied. Accordingly, X is granted an
extension of time of 120 days from the date of this letter to elect to treat Y 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 election. A copy is enclosed for that purpose.

Except as specifically set forth above, we express or imply no opinion concerning the
federal tax consequences 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, or whether Y is eligible to be a 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.

In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to the taxpayer’s authorized representatives.

                                        Sincerely,


                                        Laura C. Fields
                                        Laura C. Fields
                                        Senior Technician Reviewer, Branch 1
                                        Office of the Chief Counsel
                                        (Passthroughs & Special Industries)



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