An S corporation received 120 days to make a late QSub election

Plain-English summary

An S corporation owned all stock of a domestic subsidiary and intended to treat it as a qualified subchapter S subsidiary from a specified date. Through inadvertence, the parent failed to file Form 8869 making the QSub election. The IRS concluded that the parent satisfied the standards for late regulatory-election relief. It granted 120 days to file a properly executed Form 8869 with the intended effective date. The ruling did not decide whether the parent was otherwise a valid S corporation or whether the subsidiary otherwise qualified as a QSub.

Ruling snapshot

• Question: Could the S corporation file a late Form 8869 election to treat its wholly owned subsidiary as a QSub from the intended date?
• Outcome: Approved
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3 and 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202301005 Third Party Communication: None
Release Date: 1/6/2023 Date of Communication: Not Applicable
Index Numbers: 9100.00-00, 1361.05-00
Person To Contact:
-------------------------- --------------, ID No. -----------------
---------------------------------- Telephone Number:
------------------------------------------- --------------------
-------------------------------------- Refer Reply To:
------------------------------- CC:PSI:B01
PLR-108405-22
Date:
October 13, 2022

LEGEND

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

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

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

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

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

Dear ----------------------

This responds to a letter dated April 2, 2022, submitted on behalf of Company by
Company’s authorized representative, requesting relief pursuant to § 301.9100-3 of the
Procedure and Administration Regulations that Company be granted an extension of
time to elect to treat Sub as a qualified subchapter S subsidiary (QSub) under section
§ 1361(b)(3) of the Internal Revenue Code (the Code).

                                                  FACTS

The information submitted states that Company was organized under the laws of State
and elected to be treated as an S corporation effective Date 1. As of Date 2, Company
PLR-108405-22 2

owned all the outstanding stock of Sub and intended to elect to treat Sub as a QSub
effective Date 2. However, due to inadvertence, Company failed to file Form 8869,
Qualified Subchapter S Subsidiary Election.

                              LAW AND ANALYSIS

Section 1361(b)(3)(A) 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, which is not an
ineligible corporation, 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 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 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 301.9100-1(b) provides that the term “regulatory election” includes an
election whose due date is prescribed by a regulation published in the Federal Register.

Section 301.9100-2 provides rules governing automatic extensions of time for making
certain elections. Section 301.9100-3 provides the guidelines for granting 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 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.
PLR-108405-22 3

                                 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 2. A copy of this letter should be
attached to the election.

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 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.

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, we are sending a copy
of this letter to your authorized representative.

                                  Sincerely,

                                  Holly Porter
                                  Associate Chief Counsel
                                  (Passthroughs & Special Industries)


                             By: __________/s/___________________
                                 Laura C. Fields
                                 Chief, Branch 1
                                 Office of the Associate Chief Counsel
                                 (Passthroughs & Special Industries)

Enclosures
Copy for § 6110 purposes

cc: