Liquidating qsss qsub
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QSub elections became available because Congress understood that there were situations in which taxpayers wished to separate different trades or businesses into different corporate entities.Congress believed that, in such situations, shareholders should be allowed to arrange these separate corporate entities under parent-subsidiary arrangements as well as under brother-sister arrangements.
Background In 1996 Congress enacted amendments to the S corporation rules to permit S corporations to own 80% or more of the stock of subsidiary corporations.
But when the QSub operations are sold, a tax pitfall may loom.
Read on to learn more about QSubs, when and why it's advantageous to establish a QSub, and how to avoid potential tax traps associated with their sale.
Thereafter, as part of the same plan, X immediately makes an S election and a QSub election for Y.
Because X acquired all of the stock of Y in a qualified stock purchase within the meaning of section 338(d)(3), the liquidation described in paragraph (a)(2) of this section is respected as an independent step separate from the stock acquisition, and the tax consequences of the liquidation are determined under sections 332 and 337.
An organizational cost is any expense incurred by a corporation or partnership that is (1) incident to the creation of the company; (2) chargeable to the capital account of the company; and (3) of a character that, if expended incident to the creation of a company having a limited life, would be amortizable over such life. The investigation makes a strong business case for organizing a QSub to conduct a retail business. However, when the expansion is accomplished by setting up a separate taxable entity, such as a corporate subsidiary, startup expenses must be capitalized and may be deducted and amortized under Sec.
pays ,000 to investigate whether to form a QSub for the purpose of expanding its business to include a retail business. However, traditional organizational expenditures (such as attorneys’ fees and fees paid to the state of incorporation) incurred in the process of organizing Co. Expenses associated with opening additional stores in new locations, which conduct the same activity or same line of business, do not constitute startup expenditures subject to capitalization and amortization.Recently the Internal Revenue Service issued final regulations relating to the treatment of S corporations and their QSubs.These regulations are intended to provide guidance, and in many instances the new regulations have clarified or eliminated QSub issues.Due to popularity of the topic, it has been reviewed by Mark Sellner and re-posted in this October 2015 online edition of Footnote.When there is a business reason to maintain certain S corporation operations in a separate subsidiary, the use of a qualified S corporation subsidiary (“QSub”) may provide a tax planning opportunity.In the case of 100%-owned subsidiaries, this legislation further authorized S corporations to make an election (a "QSub election").