S corporation receives 120 days to file a late QSub election

Plain-English summary

An S corporation acquired all the stock of another domestic corporation and intended the acquired company to be a qualified subchapter S subsidiary from the acquisition date. It inadvertently failed to file the QSub election on time. Both companies represented that they had consistently reported all tax items as though the QSub election were effective, that the failure did not involve tax avoidance or retroactive planning, and that they would make any required adjustments. The IRS found that the discretionary relief requirements were satisfied and granted 120 days to file Form 8869 with retroactive effect. The ruling did not determine whether the parent qualified as an S corporation or the subsidiary otherwise met the QSub requirements.

Ruling snapshot

• Question: May the S corporation file a late QSub election effective from the date it acquired the 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: 202445004 Third Party Communication: None
Release Date: 11/8/2024 Date of Communication: Not Applicable
Index Number: 1361.00-00, 1361.05-00,
9100.00-00, 1362.01-03 Person To Contact:
--------------------, ID No. -----------------
----------------------------- Telephone Number:
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------------------------- Refer Reply To:
----------------------------- CC:PSI:1
--------------------------- PLR-102517-24
Date:
August 06, 2024

                                              LEGEND

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

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

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

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

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

Date 3 = ------------------

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

This letter responds to a letter dated January 25, 2024, 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 of the Internal Revenue Code (Code).

                                               FACTS

According to the information submitted, X is a corporation organized under the laws of
State and made an election to be an S corporation effective Date 1. Y is a corporation
organized under the laws of State on Date 2. X acquired a 100 percent interest in Y on

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Date 3. X represents that it intended for Y to be treated as a qualified subchapter S
subsidiary (QSub), effective Date 3. However, due to inadvertence, X failed to timely file
a QSub election on behalf of Y to be effective Date 3. Therefore, X requests a private
letter ruling under § 1361 that the QSub election for Y will be treated as timely made
effective Date 3.

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
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 3. X and Y have agreed to make any
adjustments required by the Service consistent with the treatment of Y as a QSub.

                              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

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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.

                                  CONCLUSION

Based solely upon the information submitted and representations made, we conclude
that the requirements of § 301.9100 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 3. 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,



                                  Laura C. Fields
                                  Branch Chief, Branch 1
                                  (Passthroughs & Special Industries)

Enclosure
Copy for § 6110 purposes

PLR-102517-24 4

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