Liquidating qsss qsub
Liquidating qsss qsub - karina kapur kae cuat prtos
The only way a calendar year corporation could have an S election effective before January 1, 2001 would be to have an S election effective on or before January 1, 2000.
Under the step transaction doctrine, A's contribution of his 50% interest in Y to X, followed by X's QSub election for Y, would be a taxable transaction.
For example, consider the common case of an individual A who contributes all of his stock in corporation Y to X, his wholly-owned S corporation. Under classic step transaction analysis, this series of transactions would be combined into one single transaction, and that single transaction may then be characterized as a "D reorganization." As so recharacterized, if the total liabilities of Y exceed the total adjusted bases of the assets of Y, that excess will be treated as currently taxable gain.
Alternatively, if the transaction fails to qualify as a reorganization, it may be fully taxable.
With the development of e-commerce and Internet companies, as well as liberalizing federal income tax rules enacted in recent years, S corporations are experiencing a resurgence in popularity.
While still not appropriate or available in every circumstance, there are a wide variety of areas in which S corporations, and particularly Qualified Subchapter S Subsidiaries (or "QSubs") offer an important planning choice.
Such a regulation certainly will improve the predictability of tax treatment when an S corporation acquires the remainder of the stock of any partially-controlled subsidiary, and then makes a QSub election.
But until new regulations are finalized this remains an area of risk; and even with these promised regulations the step transaction doctrine will pose other risks for S corporations and QSubs.
During this transitional period, the transaction described above would be tax free.
The contribution by A of the Y stock would qualify for nonrecognition as to A, X and Y under section 351 or 368(a)(1)(B), and the liquidation of Y would be tax free under sections 332 and 337.
In the case of 100%-owned subsidiaries, this legislation further authorized S corporations to make an election (a "QSub election").
Under a QSub election, the separate existence of the subsidiary is disregarded, and its assets, liabilities, and items of income, deduction and credit are instead treated as owned or derived by the S corporation directly.
The transitional period mitigates this unexpected result.