S corporation receives 120 days to make a late QSub election

Plain-English summary

An S corporation intended to elect qualified subchapter S subsidiary status for its wholly owned subsidiary but did not timely file the required election form. It nevertheless filed its returns consistently with the subsidiary being a QSub from the intended effective date. The IRS found that the corporation acted reasonably and in good faith and that granting relief would not prejudice the government's interests. It gave the corporation 120 days from the ruling date to file Form 8869 with a copy of the ruling attached. The IRS did not rule on 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 receive extra time to make its intended QSub election?
• Outcome: approved
• 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: 201810003 Third Party Communication: None
Release Date: 3/9/2018 Date of Communication: Not Applicable
Index Number: 1361.00-00, 1361.05-00,
1362.00-00, 1362.04-00 Person To Contact:
----------------------, ID No. ----------------
---------------- Telephone Number:
-------------------------- --------------------
----------------------------------- Refer Reply To:
----------------------------- CC:PSI:3
PLR-117755-17
Date:
December 01, 2017

Legend

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

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

State = --------

D1 = ---------------

D2 = -----------------------

D3 = -----------------------

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

This letter responds to a letter dated May 23, 2017, submitted on behalf of X by its
authorized representative, 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
(Code).

FACTS

The information submitted discloses that X was formed under the laws of State on D1
and elected to be an S corporation effective on D2. X wholly owns Sub. X represents
that it intended to elect to treat Sub as a QSub effective D3. However, X failed to timely
file Form 966, the form used to make a QSub election during the period in question, for
PLR-117755-17 2

Sub. See Notice 97-4, 1997-1 C.B. 351. X represents that it has filed its tax returns for
all of the relevant tax years consistent with Sub being a QSub since D3.

LAW AND ANALYSIS

Section 1361(b)(3)(A) provides, that except as provided in regulations prescribed by the
Secretary, for purposes of Title 26, (i) a corporation that 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) defines the term “qualified subchapter S subsidiary” as a
domestic corporation that is not an ineligible corporation (as defined in § 1361(b)(2)), if
100 percent of the stock of the corporation is held 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 provides the time and manner of
making a QSub election. A taxpayer makes a QSub election for a subsidiary by filing
Form 8869 with the appropriate service center. See Announcement 2000-83, 2000-2
C.B. 348.

Section 1.1361-3(a)(4) provides that a QSub election cannot be effective more than two
months and 15 days prior to the date of filing.

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.

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 Internal Revenue
Code (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.

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 an election. Section
301.9100-2 provides automatic extensions of time for making certain elections. Section
301.9100-3 provides extensions of time for regulatory elections that do not meet the
requirements of § 301.9100-2.

Section 301.9100-3(a) provides that requests for relief under § 301.9100-3 will be
granted when the taxpayer provides the evidence (including affidavits described in
§ 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer
PLR-117755-17 3

acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.

CONCLUSION

Based on the facts and representations submitted, we conclude that the requirements of
§ 301.9100-3 have been satisfied. Accordingly, X is granted an extension of time of one
hundred twenty (120) days from the date of this letter to elect to treat Sub as a QSub,
effective D3. The election should be made for Sub by filing Form 8869 with the
appropriate service center, with a copy of this letter attached.

Except for the specific ruling above, we express or imply no opinion concerning the
federal tax consequences of the facts of this case under any other provision of the
Code. Specifically, we express or imply no opinion concerning whether X is a valid S
corporation or whether Sub is eligible to be a QSub.

This ruling is directed only to the taxpayer requesting it. According to § 6110(k)(3) of
the Code, this ruling may not be used or cited as precedent.

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

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.

                                   Sincerely,


                                   ____________________
                                   Bradford R. Poston
                                   Special Counsel to the Associate Chief Counsel
                                   (Passthroughs & Special Industries)