IRS grants 120 extra days to make a late QSub election for a wholly-owned subsidiary

Plain-English summary

An S corporation (X) owned all of the stock of a subsidiary (Sub) and meant to elect to treat Sub as a qualified subchapter S subsidiary, or QSub, as soon as X became an S corporation. A QSub is not treated as a separate corporation for tax purposes; its income and items are folded into the parent S corporation. Making the election requires filing Form 8869, but X inadvertently never filed it. X asked the IRS for "9100" relief to make the election late. The IRS concluded X acted reasonably and in good faith and that relief would not harm the government, and it granted X 120 days from the letter's date to file Form 8869 effective the intended date. The ruling only fixes the missed election deadline; it does not decide whether X is a valid S corporation or whether Sub actually qualifies as a QSub.

Ruling snapshot

• Question: Should the taxpayer get a late-election extension under § 301.9100-3 to file a QSub election for Sub?
• Outcome: Approved (120-day extension granted)
• Key authorities: IRC § 1361(b)(3); Treas. Reg. § 1.1361-3; Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202325001 Third Party Communication: None
Release Date: 6/23/2023 Date of Communication: Not Applicable
Index Number: 9100.00-00, 1361.05-00
Person To Contact:
---------------------------------- ------------------------, ID No. -----------------
------------------------------------ Telephone Number:
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----------------------------------------- Refer Reply To:
---------------------------- CC:PSI:01
----------------------------- PLR-118119-22
--------------------------------------------------------- Date:
March 27, 2023

                                               LEGEND

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

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

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

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

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

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

This responds to a letter dated August 25, 2022, submitted on behalf of X by X's
authorized representatives, 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
Sub as qualified subchapter S subsidiary (QSub) under section § 1361(b)(3) of the
Internal Revenue Code (the Code).

                                                FACTS

According to the information submitted and representations within, X was organized
on Date 1, under the laws of State, and elected to be treated as an S corporation
effective Date 2.

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

                              LAW AND ANALYSIS

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 which is not an
ineligible corporation, if 100 percent of the stock of the corporation is owned 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 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
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), a request for relief 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 (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 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 2. The election should
be made by filing a properly executed Form 8869 for Sub with the appropriate service
center, and 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 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) 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 the taxpayer's authorized representatives.

                                               Sincerely,

                                               Holly Porter
                                               Associate Chief Counsel
                                               (Passthroughs and Special Industries)

                                               Jennifer N. Keeney
                                               Senior Counsel
                                               Office of the Associate Chief Counsel
                                               (Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes

cc: ---------------
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