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 (Sec. The QSub election terminates the QSub’s former identity as a separate entity for federal tax purposes. Thus, a final income tax return must be filed.
Can a QSub have a subsidiary?
An S corporation can create a subsidiary as either a limited liability company (LLC), a C corporation, or a qualified subchapter S subsidiary (QSub). An S corporation can be 80 percent or more owned by C corporations that act as subsidiaries.
Who files Form 8869?
parent S corporation
A parent S corporation uses Form 8869 to elect to treat one or more of its eligible subsidiaries as a qualified subchapter S subsidiary (QSub). The QSub election results in a deemed liquidation of the subsidiary into the parent.
When to make a qualified Subchapter’s subsidiary?
In order to be treated as a “QSUB” or “QSSS” or whatever you want to call the “child” S corporation, the parent S corporation makes a “qualified subchapter s subsidiary” election using a form 8869 by March 15 of the first year the parent S corporation wants to treat the child S corporation as a QSUB.
How is a qsub treated as a subsidiary?
A QSUB is treated as a subsidiary of the parent S corporation. And the really convenient thing is that only the parent S corporation owes a tax return to the federal and state government. (The income and deductions of the “child” S corporation get bundled with the “parent’s” income and deductions.) Making the QSUB or QSSS Election
How is the formation of a new subsidiary tax free?
Formation of the new subsidiary is a tax-free incorporation. 7 The basis of the stock of the subsidiary is the $100,000 substituted from the basis of the assets. 8 The basis of the assets transferred to the subsidiary is the $100,000 carried over from the S corporation. 9
Which is a subsidiary of an S corporation?
A QSub is a subsidiary corporation that is 100% owned by an S corporation that has made a QSub election for that subsidiary (Sec. 1361(b)(3); Regs. Sec. 1.1361- 2(a)).
