What is a QSub election?

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.

Can an S Corp make a 754 election?

This election and tax savings opportunity is not available to S corporations; S corporations may not make Section 754 elections.

Can S corporations file consolidated tax returns?

Because S corporations cannot be included in an affiliated group, an S corporation cannot join in the filing of a consolidated return. However, a C corporation subsidiary can elect to join in the filing of a consolidated return with its affiliated C corporations.

What are the benefits of a QSub?

The use of a qualified S corporation subsidiary (“QSub”) may provide a tax planning opportunity for conducting S corporation operations in separate legal entities, while still preserving the pass-through tax treatment of profits and losses.

What’s a QSub?

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.

How are qsubs treated on a Form 1120S?

Because a QSub is a disregarded entity, for purposes of Schedule M-3, Schedule L, and the Form 1120S tax return in general, the subsidiary is deemed to have liquidated into the parent S corporation. As such, all QSubs are treated as divisions of the S corporation parent.

How does Qualified Subchapter’s subsidiary ( QSub ) work?

A parent S corporation uses this form 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.

Why did Congress allow the use of qsubs?

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. 1

Where does the tax burden go when buying a qsub?

However, the tax burden has been shifted from the selling shareholders of the existing corporation to the buyers of the QSub. This pitfall can be avoided by acquiring assets instead of stock in the existing corporation.