S corporation received 120 days to file a late QSub election

Plain-English summary

An S corporation intended to treat a wholly owned subsidiary as a qualified subchapter S subsidiary (QSub) but did not timely file Form 8869. It asked for an extension under Treasury Regulation § 301.9100-3. The IRS concluded that the corporation satisfied the reasonable-cause and no-prejudice standards and gave it 120 days to file the QSub election effective on the intended date. The ruling did not decide whether the parent was otherwise a valid S corporation or whether the subsidiary was otherwise eligible for QSub status.

Ruling snapshot

• Question: Should the S corporation receive extra time to file Form 8869 electing QSub status for its subsidiary?
• Outcome: approved (120-day extension)
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a), 301.9100-1, and 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 202250006                                              Third Party Communication: None
Release Date: 12/16/2022                                       Date of Communication: Not Applicable
Index Numbers: 1361.05-00, 9100.00-00
                                                               Person To Contact:
------------------------------------------------------------   -------------------, ID No. ---------------
--------------------                                           Telephone Number:
-----------------------------------------------                --------------------
------------------------                                       Refer Reply To:
--------------------------                                     CC:PSI:03
------------------------------------                           PLR-106326-22
                                                               Date:
                                                               September 19, 2022




LEGEND:

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

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

State 1           =        --------

State 2           =        ----------------

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

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

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



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

        This letter responds to a letter dated March 3, 2022, submitted on behalf of X by
its authorized representative requesting that the Service grant X an extension of time
under § 301.9100-3 of the Procedure and Administration Regulations to elect to treat
PLR-106326-22                             2



Sub as a qualified subchapter S subsidiary (“QSub”) under § 1361(b)(3) of the Internal
Revenue Code (Code).

                                          FACTS

       The information submitted states that X, a State 1 corporation, was formed on
Date 1, and elected to be an S corporation effective Date 2. X represents that it
intended to elect to treat Sub, a State 2 corporation, as a QSub effective Date 3.
However, X failed to timely file Form 8869, Qualified Subchapter S Subsidiary Election,
for Sub.

                                  LAW AND ANALYSIS

       Section 1361(b)(3)(A) provides that except as provided in regulations prescribed
by the Secretary, for purposes of Title 26, (i) a corporation that is a QSub shall not be
treated as a separate corporation, and (ii) 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 the term “qualified subchapter S subsidiary” 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 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. An S corporation makes a QSub election for a
subsidiary by filing 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 §§ 301.9100-1 and 301.9100-3.

        Under § 301.9100-1(c), the Commissioner may grant a reasonable extension of
time 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) provides that the term “regulatory
election” includes an election whose due date is prescribed by a regulation published in
the Federal Register.
PLR-106326-22                            3



       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 the taxpayer
acted reasonably and in good faith, and 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 120 days from the date
of this letter to elect to treat Sub as a QSub effective Date 3. The election should be
made for Sub 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 of this case 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.

       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.

      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.
PLR-106326-22                           4



      In accordance with the power of attorneys on file with this office, we are sending
a copy of this letter to X’s authorized representatives.


                                                Sincerely,

                                                Associate Chief Counsel
                                                (Passthroughs and Special Industries)



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

Enclosure:
      Copy of this letter for § 6110 purposes



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