Significantly, transitional relief only applies if a QSub election is effective .QSub elections can be effective any time during the year, and thus a QSub election in the simple example above could be made at any time through December 31, 2000, and qualify for transitional relief.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.
Tweet The list of questions below leads to pages that answer the most common questions I get from CPA firm clients and from website visitors.
Therefore, if you have a question about forming, operating or ending an S corporation, the answer probably appears below.
Step Transaction Doctrine When an S corporation makes an election to treat a previously-existing corporate subsidiary as a QSub, the subsidiary is deemed to have liquidated into the S corporation parent immediately before the QSub election becomes effective.
The liquidation is deemed to occur at the close of the day before the QSub election is effective.
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 QSub election thus transforms a 100%-owned subsidiary from an entity separately recognized as a corporation for federal income tax purposes, into a branch or division of the S corporation parent with no separate existence or status for income tax purposes.
The new regulations address many of these issues but, as is evident from the points discussed below, there remain important areas in which the use of a QSub continues to raise planning opportunities, as well as potential pitfalls.
As a result, while the QSub appears in many respects to represent an important simplification there remain, even after the final regulations, significant areas in which oversimplification can be dangerous.
However, a QSub election can only be made when the electing parent corporation is an S corporation.