Late QSub election allowed

Plain-English summary

An S corporation acquired all the stock of a subsidiary and intended to elect qualified subchapter S subsidiary treatment from the acquisition date. It inadvertently failed to file Form 8869, although both companies consistently filed as though the election were effective. The IRS found the regulatory-relief requirements satisfied and granted 120 days to file the QSub election with the requested retroactive effective date. It did not rule on whether the parent was otherwise a valid S corporation or whether the subsidiary was otherwise eligible to be a QSub.

Ruling snapshot

• Question: Could the S corporation file a late QSub election effective on the subsidiary's acquisition date?
• Outcome: Approved, with Form 8869 due within 120 days.
• 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: 201946014 Third Party Communication: None
Release Date: 11/15/2019 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-105517-19
Date:
July 25, 2019

LEGEND

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

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

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

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

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

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

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

This responds to a letter dated May 7, 2019, 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).
PLR-105517-19 2

FACTS

According to the information submitted and representations within, X was incorporated
under the laws of State. On Date 2, X elected to be treated as an S corporation. On
Date 3, X acquired all of the stock of Y. X represents that, at all times on and after Date
3, X has owned all of the outstanding stock of Y and intended to elect to treat Y as a
QSub effective Date 3. However, due to inadvertence, X failed to file Form 8869,
Qualified Subchapter S Subsidiary Election.

X represents that it has filed consistently with being an S corporation and that Y has
filed consistently as a QSub since Date 3.

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
PLR-105517-19 3

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
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 3. 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) of the Code
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-105517-19 4

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                   Sincerely,


                                   Laura C. Fields
                                   Laura C. Fields
                                   Senior Technician Reviewer, 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