Parent received 120 days to file a QSub election

Plain-English summary

An S corporation wholly owned a domestic subsidiary and intended QSub treatment from the same date as the parent's S election. The parent inadvertently failed to file the subsidiary election on time, but both entities reported all tax items consistently with QSub status. The IRS found that the late-election standards were satisfied and gave the parent 120 days to file Form 8869 effective on the intended date. A copy of the ruling must accompany the form. The IRS did not decide whether the parent otherwise qualified as an S corporation or whether the subsidiary otherwise qualified as a QSub.

Ruling snapshot

• Question: Could the S corporation make a late QSub election for its wholly owned subsidiary?
• Outcome: approved, with 120 days to file Form 8869
• Key authorities: IRC § 1361(b)(3); Treas. Reg. §§ 1.1361-3(a) and 301.9100-1 and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                     Department of the Treasury
                                                              Washington, DC 20224

 Number: 202410004                                            Third Party Communication: None
 Release Date: 3/8/2024                                       Date of Communication: Not Applicable
 Index Number: 1361.05-00, 1362.01-03,
               9100.00-00                                     Person To Contact:
                                                              ------------------------, ID No. ------------------
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 --------------------------------                             Telephone Number:
 ----------------------------------                           --------------------
 ----------------------                                       Refer Reply To:
 --------------------------------------                       CC:PSI:B01
                                                              PLR-112446-23
                                                              Date:
                                                              December 12, 2023


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

 Y            = ------------------------------------------------------------------------------------------------
                -------------------------

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

 State        = --------


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

This letter responds to a letter dated June 14, 2023, and additional correspondence,
submitted on behalf of X by its authorized representative, requesting relief under
§ 301.9100-3 of the Procedure and Administration regulations to make a late election
for Y under § 1361(b)(3) of the Internal Revenue Code (Code).

                                                   FACTS

According to the information submitted, X is a corporation organized under the laws of
State. X made an election to be an S corporation effective Date 1. X owns all of the
stock of Y, a corporation organized under the laws of State. X represents that it
intended for Y to be treated as a qualified subchapter S subsidiary (QSub), effective
Date 1. However, due to inadvertence, X failed to timely file a QSub election on behalf
of Y to be effective Date 1.

X represents that its failure to file a QSub election for Y was inadvertent and not the
result of tax avoidance or retroactive tax planning. X further represents both it and Y

PLR-112446-23                                 2

have filed tax returns and reported all tax items consistent with the tax treatment of Y as
a QSub for all relevant years since Date 1.

                                  LAW AND ANALYSIS

Section 1361(b)(3)(A) provides that, except as provided in regulations prescribed by the
Secretary, for purposes of the Code (i) a corporation which 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) provides that the term "QSub" means any domestic corporation
which is not an ineligible corporation (as defined in § 1361(b)(2)), if (i) 100 percent of
the stock of such corporation is held by the S corporation, and (ii) the S corporation
elects to treat such corporation as a QSub.

Section 1.1361-3(a)(1) of the Income Tax Regulations provides that the corporation for
which a QSub election is made must meet all the requirements of § 1361(b)(3)(B) at the
time the election is made and for all periods for which the election is to be effective.

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 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 extensions that do not meet the
requirements of § 301.9100-2. Under § 301.9100-3, a request for relief 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 (1) the taxpayer acted
reasonably and in good faith, and that (2) the grant of relief will not prejudice the
interests of the Government.

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                                      CONCLUSION

Based solely on the information submitted and representations made, we conclude that
the requirements of § 301.9100-3 have been satisfied. Accordingly, X is granted an
extension of time of 120 days from the date of this letter to file Form 8869, Qualified
Subchapter S Subsidiary Election, with the appropriate service center on behalf of Y
effective Date 1. A copy of this letter should be attached to the Form 8869.

Except as expressly provided herein, we express or imply no opinion concerning the
federal income tax consequences of the facts under any other provision of the Code.
Specifically, we express or imply no opinion on whether X met the definition of an S
corporation under § 1361(b)(1) or Y met the definition of a QSub under § 1361(b)(3).

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) provides that
it may not be used or cited as precedent.


                                       Sincerely,


                                       ________________________________
                                       Joy Spies, Senior Technician Reviewer
                                       Branch 1
                                       Office of the Associate Chief Counsel
                                       (Passthroughs & Special Industries)


Enclosure:
      Copy for § 6110 purposes

PLR-112446-23                                           4


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