IRS grants an S corporation 120 days to make a late QSub election for its wholly owned subsidiary

Plain-English summary

An S corporation asked the IRS for extra time to elect to treat its wholly owned subsidiary as a qualified subchapter S subsidiary (QSub). A QSub election lets the parent treat the subsidiary as part of itself for tax purposes rather than as a separate corporation. The parent intended to make the election effective from a specific date, filed its tax returns as if the subsidiary were a QSub from that date, but inadvertently failed to file the required Form 8869 on time. Under the "9100 relief" regulations (Treas. Reg. § 301.9100-3), the IRS can extend the time to make a missed regulatory election if the taxpayer acted reasonably and in good faith and granting relief will not harm the government's interests. The IRS found both requirements met and gave the corporation 120 days to file Form 8869. The IRS expressly did not rule on whether the parent is a valid S corporation or whether the subsidiary is actually eligible to be a QSub.

Ruling snapshot

• Question: Should the S corporation get an extension under Treas. Reg. § 301.9100-3 to make a late QSub election it failed to file on time?
• Outcome: Approved (120-day extension to file Form 8869)
• 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: 202211006 Third Party Communication: None
Release Date: 3/18/2022 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:B03
------------------------------- PLR-114040-21
Date:
December 20, 2021

                                               LEGEND

X = ---------------------------------------------------------------------------------------------------------
-----------------------
Sub = ----------------------------------------------------------------------------------------------------
State = ----------
Date 1 = -----------------
Date 2 = ---------------------
Date 3 = --------------------------

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

    This letter responds to a letter dated June 30, 2021, 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 provides that X was incorporated under the laws of

State on Date 1 and elected to be an S corporation effective Date 2. On Date 3, Sub
was incorporated under the laws of State and has been wholly owned by X since
inception. X represents that it intended to elect to treat Sub as a QSub effective Date 2.
However, due to inadvertence, X failed to timely file Form 8869, Qualified Subchapter S
Subsidiary Election, for Sub.

    X represents that it has filed its tax returns consistent with Sub being a QSub

effective Date 2.

                                 LAW AND ANALYSIS

    Section 1361(a) provides that the term “S corporation” means, with respect to

any taxable year, a small business corporation for which an election under § 1362(a) is
in effect for the year.

   Section 1361(b)(1) defines a “small business corporation” as a domestic

corporation which is not an ineligible corporation and which does not (A) have more
than 100 shareholders, (B) have as a shareholder a person (other than an estate, a
trust described in § 1361(c)(2), or an organization described in § 1361(c)(6)) who is not
an individual, (C) have a nonresident alien as a shareholder, and (D) have more than
one class of stock.

    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 that is not an

ineligible corporation (as defined in § 1361(b)(2)), if 100 percent of the stock of the
corporation is held 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 provides the time and

manner of making a QSub election. Under § 1.1361-3(a)(2), 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.

   Under § 301.9100-1(c), 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 no more than six 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.

   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 (i) the
taxpayer acted reasonably and in good faith, and (ii) the grant of relief will not prejudice
the interests of the Government.

                                  CONCLUSION

    Based on the facts submitted and representations made, we conclude that X has

satisfied the requirements of §§ 301.9100-1 and 301.9100-3 with respect to the QSub
election for Sub. Accordingly, we grant X 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 Date 2.
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.

   Except for the specific ruling 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 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 this ruling 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.

    Under a power of attorney on file with this office, we are sending a copy of this

letter to your authorized representatives.

                                   Sincerely,

                                   Associate Chief Counsel
                                   (Passthroughs & Special Industries)

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

Enclosure
Copy of letter for § 6110 purposes

cc: