S corporation received more time to make a QSub election

Plain-English summary

An S corporation acquired all the stock of a subsidiary and intended to treat it as a qualified subchapter S subsidiary (QSub) from the acquisition date. The corporation failed to file Form 8869 on time because of inadvertence, but both entities consistently filed as though the QSub election were effective. The IRS found that the requirements for discretionary relief under Treasury Regulation section 301.9100-3 were satisfied. It granted the corporation 120 days from the letter date to file Form 8869 for the intended effective date and required a copy of the ruling to accompany the election. The IRS did not decide whether the parent was otherwise a valid S corporation or whether the subsidiary was eligible to be a QSub.

Ruling snapshot

• Question: May the S corporation receive an extension to elect QSub treatment for its wholly owned subsidiary effective on the acquisition date?
• Outcome: approved (Form 8869 had to be filed within 120 days)
• Key authorities: IRC §§ 1361(b)(3) and 1362(a); Treas. Reg. §§ 1.1361-3(a) and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202019009 Third Party Communication: None
Release Date: 5/8/2020 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-113911-19
Date:
December 10, 2019

LEGEND

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

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

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

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

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

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

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

This responds to a letter dated June 11, 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).

FACTS

PLR-113911-19 2

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 2. 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) of the Code provides that except as provided in § 1362(g), a small
business corporation may elect, in accordance with the provisions of § 1362, to be an S
corporation. Section 1362(a)(2) provides that an election § 1362(a) 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 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, Qualified Subchapter S Subsidiary Election.

Section 1361-3(a)(6) 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

PLR-113911-19 3

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) 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.

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,

                                  Joy C. Spies
                                  Joy C. Spies
                                  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

cc: