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.
Qualifications & Considerations
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.