Acquisition of qsub stock
Another illustration of this rule occurs when an S corporation sells 100% of the stock of a subsidiary that was a QSub immediately prior to its acquisition by another S corporation. The acquiring S corporation may then make a QSub election for the acquired subsidiary, effective as of the date of acquisition. First, the buyer can negotiate to restructure the purchase so that it is treated as a purchase of assets for Federal income tax purposes. For example, in some instances the parties can restructure the purchase so that P acquires the membership interests of a “disregarded” LLC or the stock of a “QSub”. The Case of the Disappearing Basis: Stock Acquisitions by S Corporations Followed by QSub Election Stephen R. Looney is a Shareholder in Dean Mead’s Orlando, Florida, offi ce. S ubchapter S corporations have been major par-ticipants making effective use of wholly owned disregarded subsidiaries in business and tax planning since 1996. Situation 1. X is a State A S corporation that owns 100 percent of the stock of Sub 1, a corporation that X has elected to treat as a QSub. The shareholders of X form U, a State B corporation. X merges with and into U in a transaction qualifying as a reorganization under § 368(a)(1)(F). X, an S corporation, owns 100 percent of the stock of Y, a corporation for which a QSub election is in effect. Z, an unrelated C corporation, acquires 100 percent of the stock of Y. The deemed formation of Y by X (as a consequence of the termination of Y's QSub election) is disregarded for Federal income tax purposes. P acquires all the stock of T in a statutory merger of Y into T, with T surviving. S receives consideration consisting of 50% P voting stock and 50% cash. T subsequently merges into P. P and S do not make an election under Section 338(h)(10) for T. Absent the application of Treas.
Applying Section 1239 to the facts in Fish, when the Qsub election of Fishnet terminated, Holdings was deemed to transfer all of the assets of Fishnet to a newly-formed C corporation in exchange for 57% of its stock. The default treatment of such a transfer is a sale that Section 351 serves to exclude from gain.
1 Oct 2019 By contrast, the purchase of the stock of the corporation from its S subsidiary ( QSub), effective immediately following the transaction. Number of. Shares. Date. Acquired. Shareholder's Signature. Stock Owned. M D. Y. D. Y. Y Y nor the QSub may elect out of Wisconsin tax-option (S) treatment. limiting liability exposure) is an asset acquisition. However, an stepped up in a stock purchase (including those basis, make a “QSUB election” for T, and. 14 Aug 2019 treated as a new corporation that acquired all of its assets and S corporation in exchange for newly issued stock of the former QSub at the An S corporation can purchase stock in a domestic subsidiary and flow income through (LLC), a C corporation, or a qualified subchapter S subsidiary (QSub). 31 May 2019 Assuming all other requirements are met, Mary's acquisition of all of the and a QSUB election for the corporation owned by the LLC can the S
Obviously, the parent would acquire the stock with a cost basis. Without more, the sub’s basis for its assets would not be affected by the purchase of its stock. If the parent later sold the sub stock, it would recover its stock basis before realizing any gain.
Applying Section 1239 to the facts in Fish, when the Qsub election of Fishnet terminated, Holdings was deemed to transfer all of the assets of Fishnet to a newly-formed C corporation in exchange for 57% of its stock. The default treatment of such a transfer is a sale that Section 351 serves to exclude from gain. For example, an acquisition by a parent S corporation of all of the stock of another corporation in exchange for its own stock, followed by a QSub election and deemed liquidation, generally would qualify as a "C" reorganization; and the acquisition could still qualify as a "C" reorganization even if the parent corporation paid consideration consisting 90% of stock and 10% in cash. Another illustration of this rule occurs when an S corporation sells 100% of the stock of a subsidiary that was a QSub immediately prior to its acquisition by another S corporation. The acquiring S corporation may then make a QSub election for the acquired subsidiary, effective as of the date of acquisition.
Taxpayer has Corporation Y acquire. 100% of the stock of Corporation X in a tax- free merger, and Corporation. Y immediately causes a QSub election.
Situation 1. X is a State A S corporation that owns 100 percent of the stock of Sub 1, a corporation that X has elected to treat as a QSub. The shareholders of X form U, a State B corporation. X merges with and into U in a transaction qualifying as a reorganization under § 368(a)(1)(F). X, an S corporation, owns 100 percent of the stock of Y, a corporation for which a QSub election is in effect. Z, an unrelated C corporation, acquires 100 percent of the stock of Y. The deemed formation of Y by X (as a consequence of the termination of Y's QSub election) is disregarded for Federal income tax purposes. P acquires all the stock of T in a statutory merger of Y into T, with T surviving. S receives consideration consisting of 50% P voting stock and 50% cash. T subsequently merges into P. P and S do not make an election under Section 338(h)(10) for T. Absent the application of Treas. Making the QSUB or QSSS Election. In order to be treated as a "QSUB" or "QSSS" or whatever you want to call the "child" S corporation, the parent S corporation makes a "qualified subchapter s subsidiary" election using a form 8869 by March 15 of the first year the parent S corporation wants to treat the child S corporation as a QSUB. acquisition planners knew that if they bought the stock of a target and then, within two years of closing, liquidated it, they would get a stepped-up basis in the assets they acquired in the liquidation. In effect, if they finished the second piece (the liquidation) within two years, their stock acquisition would be treated as an asset acquisition,
When Target is an existing or a newly created qualified subchapter S subsidiary (QSub) of an S corporation and the Buyer acquires less than 100% of the stock in Target, the Buyer is treated as acquiring a proportionate interest in each asset and assuming a proportionate amount of each liability, determined based on the percentage of Newco stock sold (Sec. 1361(b)(3)(C)). Both the Buyer and the selling S corporation are then treated as contributing their shares of the assets and liabilities
Planning for the acquisition or disposition of stock or assets of an S corporation may cover the entire spectrum of Subchapter S taxation. This includes consideration of the election and termination of Sub-chapter S status, the eligibility rules governing shareholders, including the one class of stock limitation, the
Number of. Shares. Date. Acquired. Shareholder's Signature. Stock Owned. M D. Y. D. Y. Y Y nor the QSub may elect out of Wisconsin tax-option (S) treatment. limiting liability exposure) is an asset acquisition. However, an stepped up in a stock purchase (including those basis, make a “QSUB election” for T, and. 14 Aug 2019 treated as a new corporation that acquired all of its assets and S corporation in exchange for newly issued stock of the former QSub at the