This update on recent developments in taxation relating to S corporations includes cases and rulings on eligible shareholders, electing small business trusts, inadvertent S election terminations, and other issues, as well as changes made by the TCJA.
Restructuring an existing QSub in an attempt to qualify for an ordinary deduction is prohibited and might result in an unfavorable deferral of loss.
IRS addressed whether an S corporation and its wholly owned subsidiary, a QSub, must prorate annual income following a midyear voluntary revocation of subchapter S election.
The Tax Court held that shareholders of an S corporation improperly increased the adjusted basis of their S corporation stock when the S corporation made a QSub election for its wholly owned C corporation subsidiary.
An S corporation’s revocation of its S corporation status, which caused its QSub subsidiary to lose its status as a QSub, was not a post-bankruptcy-petition transfer of property of the QSub’s bankruptcy estate.
During the period of this S corporation tax update, some major changes that directly affect S corporations took place. This article also presents tax planning ideas for S corporations and their shareholders.
A qualified subchapter S subsidiary (QSub) is a subsidiary corporation 100% owned by an S corporation that has made a valid QSub election for the subsidiary.
Temporary and proposed regulations extend the religious and family member FICA and FUTA tax exceptions to disregarded entities.
This article discusses S corporation eligibility, elections, and termination issues from the period July 2009–July 2010.
In Vainisi, the Seventh Circuit reversed a decision in which the Tax Court held that the 20% interest expense reduction imposed by Sec. 291(a)(3) would apply to a qualified subchapter S subsidiary (QSub) bank even for its tax years following the third year after it converted from C corporation to S corporation status.
An S corporation can elect to treat a 100% owned subsidiary as a qualified subchapter S subsidiary (QSub), which causes the subsidiary to be disregarded for most federal tax purposes. The subsidiary must be a corporation that would be eligible to be an S corporation if the shareholders of its parent S corporation held its stock directly.
Rev. Rul. 2008-18 posits two situations in which an S corporation becomes a QSub of a newly formed corporation that will qualify as an F reorganization. The ruling also provides new guidance on the proper employer identification number (EIN) to be used by the entities in each situation.
Editor: Kevin F. Reilly, J.D., CPA The IRS has issued final regulations that treat qualified subchapter S subsidiaries (QSubs) and other disregarded entities (DEs) as separate entities for federal employment tax and certain excise tax purposes (TD 9356). Although the regulations are effective as of August 16, 2007, the employment
This article covers S corporation operational issues.
Part I of this two-part article discusses S corporation eligibility, elections, and termination issues, including several changes related to the Small Business and Work Opportunity Tax Act of 2007.