Summary
IRS regulations concerning qualified Subchapter S subsidiary corporations
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Extract
Final Qsub regs.
The IRS issued final regulations under Sec. 1361 on the treatment of qualified subchapter S subsidiaries (QSubs). The final regulations addressed many significant tax issues for QSub acquisitions, formations, terminations and liquidations that were not addressed in the proposed regulations. While the final regulations help practitioners avoid certain unexpected traps (e.g., triggering of excess loss accounts (ELAs) and built-in-gains (BIG) tax exposure), many other traps (e.g., application of the step-transaction doctrine) still exist for the unwary.
What Is a Wholly Owned QSub? A QSub is a wholly owned subsidiary for which a valid QSub election is made by an S parent. Once a valid QSub election is made, a subsidiary is deemed to have liquidated into its S parent tax-free under Sec. 332 and would not be treated as a separate corporation for any other income tax purposes. All assets, liabilities and items of income, deduction and credit of a QSub will be treated as assets, liabilities and items of income, deduction and credit of the S par...See the full content of this document
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