IRS grants an S corporation extra time to elect QSub treatment for its subsidiary (late Form 8869 relief)

Plain-English summary

An S corporation can elect to treat a wholly owned subsidiary as a "qualified subchapter S subsidiary" (QSub), which makes the subsidiary invisible for tax purposes so its assets and income are treated as the parent's. That election is made by filing Form 8869, and here the parent intended to make it but, by inadvertence, never filed the form. The company asked the IRS for "9100 relief," a discretionary extension under Treas. Reg. § 301.9100-3 for missed regulatory elections. The IRS granted 120 days from the date of the letter to file a proper Form 8869 effective on the intended date, concluding the taxpayer acted reasonably and in good faith and that relief would not prejudice the Government. The IRS expressed no opinion on whether the parent is actually a valid S corporation or whether the subsidiary is eligible to be a QSub. The ruling lets the company cure a missed election so the subsidiary gets the intended QSub treatment.

Ruling snapshot

• Question: Should the IRS grant an extension of time under § 301.9100-3 for an S corporation to file a late Form 8869 QSub election for its subsidiary?
• 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: 202039004                                              Third Party Communication: None
Release Date: 9/25/2020                                        Date of Communication: Not Applicable
Index Numbers: 1361.00-00, 1361.05-00,
              9100.00-00                                       Person To Contact:
                                                               -----------------------, ID No. -----------------
------------------------------------------------               Telephone Number:
----------------------------------------------------           --------------------
-----------------------------------                            Refer Reply To:
------------------------------                                 CC:PSI:03
                                                               PLR-122516-19
                                                               Date:
                                                               March 17, 2020




Legend

Company                    =         -------------------------------------------------
-----------------------------------------------------------

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

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

Date                       =        ----------------------


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

This letter responds to a letter dated September 19, 2019, and subsequent
correspondence, submitted on behalf of Company, requesting relief under § 301.9100-3
of the Procedure and Administration Regulations for Company to elect to treat Sub as a
qualified subchapter S subsidiary (QSub).

                                                       FACTS

Company, a State corporation, wholly owns Sub, also a State corporation. Company
elected to be treated as an S corporation effective Date and intended to elect to treat
Sub as a QSub effective Date. However, due to inadvertence, Company failed to file
Form 8869, “Qualified Subchapter S Subsidiary Election,” for Sub.

                                                       LAW

Section 1361(b)(3)(A) of the Internal Revenue Code (Code) provides that a QSub shall
not be treated as a separate corporation, and all assets, liabilities, and items of income,
PLR-122516-19                                 2

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 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. Section 1.1361-3(a)(2) provides that an S corporation makes a
QSub election with respect to a subsidiary by filing a Form 8869 with the appropriate
service center. 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 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 under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a
regulatory election, or a statutory election (but not 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 301.9100-2 provides an automatic extension of time for making certain
elections. Section 301.9100-3 provides extensions of time for making elections that do
not meet the requirements of § 301.9100-2.

Section 301.9100-3(a) provides that requests for relief subject to § 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
acted reasonably and in good faith, and the grant of relief will not prejudice the interests
of the Government.

                                      CONCLUSION

Based solely on the facts submitted and the representations made, we conclude that
Company has satisfied the requirements of §§ 301.9100-1 and 301.9100-3 with respect
to the QSub election for Sub. Accordingly, we grant Company an extension of time of
120 days from the date of this letter to file a properly executed Form 8869 for Sub with
the appropriate service center effective Date. A copy of this letter should be attached to
the election.

Except as expressly provided herein, we express or imply no opinion concerning the
federal tax consequences of any aspect of any transaction or item discussed or
PLR-122516-19                                3

referenced in this letter. Specifically, we express or imply no opinion as to whether
Company is a valid S corporation or whether Sub 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.

In accordance with the power of attorney on file with this office, we are sending a copy
of this letter to your 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,

                                          Associate Chief Counsel
                                          (Passthroughs & Special Industries)



                                   By:
                                          Mary Beth Carchia
                                          Senior Technician Reviewer, Branch 3
                                          Office of Associate Chief Counsel
                                          (Passthroughs & Special Industries)


Enclosures (2):
Copy of this letter
Copy for §6110 purposes



cc: