Late QSub elections allowed for three subsidiaries

Plain-English summary

An S corporation owned all the stock of three subsidiaries and intended to treat each as a qualified subchapter S subsidiary from the same effective date as its S election. Through inadvertence, it did not timely file Forms 8869 for the subsidiaries. The IRS concluded that the corporation satisfied the regulatory relief requirements and granted 120 days to file a separate Form 8869 for each subsidiary. The ruling does not decide whether the parent is a valid S corporation or whether any subsidiary otherwise qualifies as a QSub.

Ruling snapshot

• Question: May the S corporation make late QSub elections for three wholly owned subsidiaries?
• Outcome: Approved, with 120 days to file three Forms 8869
• Key authorities: IRC §§ 1361(a), 1361(b)(1), 1361(b)(3), 1362(a); 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: 202436006 Third Party Communication: None
Release Date: 9/6/2024 Date of Communication: Not Applicable
Index Number: 9100.31-00, 1361.05-00
Person To Contact:
------------------------------------ ----------------------, ID No. -----------------
-------------------------------------------- Telephone Number:
--------------------------------- --------------------
----------------------------- Refer Reply To:
------------------------- CC:PSI:B03
PLR-123972-23
Date:
June 07, 2024

Legend

X = ------------------------------------
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Sub 1 = ------------------------
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Sub 2 = -------------------------------
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Sub 3 = -------------------------------------------------
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State = -------------

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

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

   This responds to a letter dated November 20, 2023 and subsequent

correspondence, submitted on behalf of X by X’s authorized representatives, requesting
an extension of time under § 301.9100-3 of the Procedure and Administration
Regulations to elect to X treat Sub 1, Sub 2, and Sub 3 as qualified subchapter S
subsidiaries (“QSubs”) under § 1361(b)(3) of the Internal Revenue Code (“Code”).

PLR-123972-23 2

                                     FACTS

   According to the information submitted and representations within, X was

incorporated under the laws of State on Date 1. Effective Date 1, X elected to be taxed
as an S corporation.

   Since Date 1, X has owned all the outstanding stock of Sub 1, Sub 2, and Sub 3

and intended to elect to treat Sub 1, Sub 2, and Sub 3 as QSubs effective Date 1.
However, due to inadvertence X failed to timely file Forms 8869, Qualified Subchapter S
Subsidiary Election, for Sub 1, Sub 2, and Sub 3.

                              LAW AND ANALYSIS

    Section 1361(a) provides that the term “S corporation” means, with respect to

any taxable year, a small business corporation for which an election under § 1362(a) is
in effect for the year.

   Section 1361(b)(1) defines a “small business corporation” as a domestic

corporation which is not an ineligible corporation and which does not (A) have more
than 100 shareholders, (B) have as a shareholder a person (other than an estate, a
trust described in § 1361(c)(2), or an organization described in § 1361(c)(6)) who is not
an individual, (C) have a nonresident alien as a shareholder, and (D) have more than
one class of stock.

    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 provides the time and

manner for making an election to be classified as a QSub. Under § 1.1361-3(a)(2), an
S corporation makes a QSub election with respect to a subsidiary by filing a Form 8869
with the appropriate service center. 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.

  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.

PLR-123972-23 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.

   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 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 elections for Sub 1, Sub 2, and Sub 3. Accordingly, we grant X an extension of
time of one hundred twenty (120) days from the date of this letter to elect to treat Sub 1,
Sub 2, and Sub 3 each as a QSub, effective Date 1. The elections should be made by
filing properly executed Forms 8869 with the appropriate service center, and a copy of
this letter should be attached to each 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, including whether X is a valid S corporation, or whether Sub 1, Sub 2, or Sub
3 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.

PLR-123972-23 4

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.

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

                                      Sincerely,

                                      Associate Chief Counsel
                                      (Passthroughs & Special Industries)


                                      Robert D. Alinsky
                               By:    ______________________________
                                      Robert D. Alinsky
                                      Branch Chief, Branch 3
                                      Office of the Associate Chief Counsel
                                      (Passthroughs & Special Industries)

Enclosure:
Copy of this letter for § 6110 purposes

cc: