Late QSub election allowed

Plain-English summary

An S corporation acquired all the stock of a subsidiary and intended qualified subchapter S subsidiary treatment from the acquisition date. It inadvertently failed to file Form 8869. The IRS found that the parent satisfied the discretionary filing-relief standards and granted it 120 days to make the QSub election with the intended effective date. The election must be filed on a properly executed Form 8869 with a copy of the ruling. The IRS did not decide whether the parent was a valid S corporation or whether the subsidiary otherwise qualified as a QSub.

Ruling snapshot

• Question: May 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, 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202432010 Third Party Communication: None
Release Date: 8/9/2024 Date of Communication: Not Applicable
Index Number: 1361.00-00, 1361.05-00,
9100.00-00 Person To Contact:
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-------------------------------- Refer Reply To:
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PLR-121510-23
Date:
May 08, 2024

                                                   LEGEND

X = -------------------------------------------------------------------------------------------------
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Sub = -------------------------------------------------------------------------------------------------
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State = --------

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

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

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

This letter responds to a letter dated September 5, 2023, and subsequent
correspondence, submitted on behalf of X by X’s authorized representative, requesting
an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations to file a late election on behalf of Sub to be a qualified subchapter S
subsidiary (“QSub”) under § 1361(b)(3)(B)(ii) of the Internal Revenue Code (“Code”)
and § 1.1361-3 of the Income Tax Regulations.

                                                   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 1. As of Date 2, X owned all the outstanding stock of Sub and intended to elect to
PLR-121510-23 2

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) 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.
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                                  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, we are sending a copy
of this letter to X's authorized representatives.

                                      Sincerely,
                                      Holly Porter
                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)



                                By:
                                      Caroline E. Hay
                                      Senior Technician Reviewer, Branch 1
                                      Office of Associate Chief Counsel
                                      (Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes
PLR-121510-23 4

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