New York Qsub Election, 3 13 222 Bmf Entity Unpostable Correction Procedures Internal Revenue Service

However a qsub election can only be made when the electing parent corporation is an s corporation.

Election movie johnnie to. The parent and subsidiary will be taxed as a single new york s corporation and the shareholders of parent will be taxed under the article 22 personal income tax. Once a valid qsub election is made the subsidiary is deemed to have been liquidated into its s corporation parent tax free under irc section 332 and would not be treated as a separate corporation for any other income tax purposes. A subsequent sale of the qsub for 1 million would result in a 900000 gain which is the same result as if the assets had never been transferred to the subsidiary.

In both instances parent and subsidiary will be taxed as a single new york c corporation under article 9 a or article 32 and the shareholders of the parent. Also arkansas79 new jersey80 new york81 and pennsylvania82 re quire a separate state law election for corporations desiring to be treated as s corporations. 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.

Because of the qsub election. The childs subchapter s status gets terminated because an s corporation is not a eligible subchapter s corporation shareholder. 10 the 100000 asset basis is retained.

Subchapter s election also recognize the federal qsub election a limited number of states require a qsub to make a separate state election see eg new jersey and new york a number of states are silent regarding treatment of a qsub 20. A quick tangential point. Y is treated as a new corporation acquiring all of its assets and assuming all of its liabilities immediately before the revocation from its s corporation parent in a deemed exchange for y stock.

If an s corporation acquires another s corporation and does not make the qsub election for the new child that child becomes a regular c corporation. New york will follow the federal qsss treatment a if the subsidiary is a new york taxpayer or b if the subsidiary is not a taxpayer but the parent makes a qsss inclusion election. New york will follow the federal qsss treatment where the subsidiary is a new york taxpayer but the parent is not if the parent makes the new york s election.

If however the llc conversion occurs long after the contribution of target stock to newco the transaction does not qualify as an f reorganization and a valid qsub election is essential to avoid potential risks associated with momentary. X an s corporation owns 100 percent of the stock of y a corporation for which a qsub election is in effect. X subsequently revokes the qsub election.