Seven subsidiaries received 120 days for late QSub elections

Plain-English summary

An S corporation acquired seven wholly owned domestic subsidiaries on several dates and consistently treated each one as a qualified subchapter S subsidiary, but inadvertently failed to file the required Forms 8869. It represented that every subsidiary was eligible for QSub status and that it had otherwise remained a qualifying small business corporation and filed consistently with its S election. The IRS found that the regulatory-extension standards were met and granted 120 days to file the seven late QSub elections, effective on their respective acquisition dates.

Ruling snapshot

• Question: Could the S corporation make late QSub elections for seven wholly owned subsidiaries?
• Outcome: Approved for 120 days, subject to filing Forms 8869 with the appropriate service center.
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                         Department of the Treasury
                                                                 Washington, DC 20224

Number: 201928012                                                Third Party Communication: None
Release Date: 7/12/2019                                          Date of Communication: Not Applicable
Index Number: 1362.01-01, 1362.04-00,
              1361.05-00                                         Person To Contact:
                                                                 --------------, ID No. -----------------
-----------------------------------------------                  Telephone Number:
-----------------------------------                              ---------------------
------------------------------                                   Refer Reply To:
----------------------------------                               CC:PSI:B01
                                                                 PLR-131341-18
                                                                 Date:
                                                                 March 26, 2019




LEGEND

X        =         -----------------------------------------------
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Sub 1 =            ---------------------------------
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Sub 2 =            -----------------------
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Sub 3 =            ------------------------------------
                  -------------------------

Sub 4 =            ------------------------------------------
                  -------------------------

Sub 5 =            -------------------------------------------
                  -------------------------

Sub 6 =            ------------------------
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Sub 7 =            ------------------------
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Date 1=           --------------------------

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

PLR-131341-18                               2

Date 3=         ---------------------

Date 4=         ------------------------

Date 5=         ----------------------

Year =          ------

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



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

This responds to a letter dated September 18, 2018, 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
the requested subsidiaries as qualified subchapter S subsidiaries (QSubs) under
section § 1361(b)(3) of the Internal Revenue Code (the Code).

FACTS

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

On Date 2, X acquired the stock of Sub 1 and represents that, at all relevant times on
and after Date 2, X has owned all of the outstanding stock of Sub 1 and has treated Sub
1 as a QSub effective Date 2.

On Date 3, X acquired the stock of Sub 2 and represents that, at all relevant times on
and after Date 3, X has owned all of the outstanding stock of Sub 2 and has treated Sub
2 as a QSub effective Date 3.

On Date 4, X acquired the stock of Sub 3 and Sub 4 and represents that, at all relevant
times on and after Date 4, X has owned all of the outstanding stock of Sub 3 and Sub 4
and has treated Sub 3 and Sub 4 as QSubs effective Date 4.

On Date 5, X acquired the stock of Sub 5, Sub 6, and Sub 7 and X represents that, at all
relevant times on and after Date 5, X has owned all of the outstanding stock of Sub 5,
Sub 6, and Sub 7 and has treated Sub 5, Sub 6, and Sub 7 as QSubs effective Date 5.

X represents that Sub 1, Sub 2, Sub 3, Sub 4, Sub 5, Sub 6 and Sub 7 were eligible to
make a QSub elections. However, due to inadvertence, X failed to file Form 8869,

PLR-131341-18                                3

Qualified Subchapter S Subsidiary Elections for Sub 1, Sub 2, Sub 3, Sub 4, Sub 5, Sub
6 and Sub 7.

X represents that the failure to file the QSub elections for Sub 1, Sub 2, Sub 3, Sub 4,
Sub 5, Sub 6 and Sub 7 was discovered in Year. X further represents that X has filed
its income tax returns consistent with having a valid S election in effect for all taxable
years since X elected to be an S corporation. X represents that other than the failure to
make valid QSub elections, X has qualified as a small business corporation at all times
since its election on Date 1.

LAW AND ANALYSIS

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 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.

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 1361-3(a)(b) 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 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.

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

PLR-131341-18                                4

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 Sub 1 as a
QSub, effective as of Date 2, Sub 2 as a QSub effective as of Date 3, Sub 3 and Sub 4
as QSubs effective as of Date 4, and Sub 5, Sub 6 and Sub 7 as QSubs effective as of
Date 5. The election should be made by filing Form 8869 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 Sub 1, Sub 2, Sub 3, Sub 4, Sub 5, Sub 6 and Sub 7 are eligible
to be QSubs.

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.

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.

PLR-131341-18                                  5

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,

                                        Holly Porter
                                        Associate Chief Counsel
                                        (Passthroughs and Special Industries)

                                             Laura C. Fields
                                        By: Laura C. Fields
                                        Senior Technician Reviewer
                                        Office of the Associate Chief Counsel
                                        (Passthroughs & Special Industries)


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