Discussion:Qsub
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| 30 July 2007 | |
| I have a client who owns two S corps with his wife 50-50, Co. A and Co. B. they own all the stock and they would like to consolidate into one corp for tax purposes. Is electing Qsub for Co. #2 the way to go? I've never done this before and am a sole practitioner. From what I've read, you make the election, file one 1120S while keeping separate g/l's for accounting purposes. Co. A markets chemicals and Co. B. owns the property. Any tax risks for the two owners? Is the election usually on 1/1? Thanks much. | |
| 31 July 2007 | |
| Co. B owns the land and the warehouse in which the chemicals are stored. The corporate offices are in the same bldg as the warehouse. | |
| 8 August 2007 | |
| This thread seemed to die a quick death but I'd like to revive it. Maybe my original post was unclear. Husband and wife own two S corps. They would like to make the Qsub election. We would continue to keep two general ledgers for our own purpose, but file one consolidated 1120S. I don't see any tax problems for them, but I'd like some comments please. I haven't done this before. Thanks. | |
| August 8, 2007 | |
| Read more. Never ever real estate in a corp...too many traps and you hate yourself in the morning. Unless it's been in there a long time already, I'd kill that corp and eat whatever gain you have to now, and then keep the RE in an LLC or just jointly owned. | |
| 8 August 2007 | |
| JR1 - Even an S corp? Why? It's been there a long time. Basis is roughly 250k and fmv 1M. | |
| August 8, 2007 | |
| Leave as is then. Even in an S, if/when the time comes that they want it out for whatever reason, you have a taxable event. Hence, a super reason to leave it in the existing corp by itself. Suppose you merged the corps. Ten years from now, they want to sell the company, but retain the real estate for lifetime rental income. Trouble. Now you HAVE to get it out, or sell the assets of the corp without the RE...etc. So I'd keep as is given what you've described. | |
| 8 August 2007 | |
| PBin, I don't see any major problems with the QSub election. Effectively it means the subsidiary corp becomes a division of the parent and included on the parent company's return. The subsidiary corp still exists for legal purposes, but disappears for tax purposes. I don't remember if both corps have payroll if you continue to use the EIN for the sub. I think so, but don't quote me. And yes, you would make the election effective the beginning of the tax year. | |
| 8 August 2007 | |
| Since they are both S corporations, it's not clear to me why you wouldn't just merge them and not worry about two sets of books. An attorney could tell you what additional liability protection, if any, they would get from having two entities rather than one. | |
| 9 August 2007 | |
| JR1 - Do you see any problem in electing Qsub with the property owner company as the parent and the marketing company as the sub?
KatieJ - how do you just merge them without closing down one of the corps? Thanks all. | |
| 9 August 2007 | |
| The attorney will likely advise that some measure of liability protection is obtained by keeping two legal entities, one to own the RE and the other to operate whatever business it is. Although, to protect both corps from liability arising in the other corp, I think you would need to set up a third corp to act as the parent of the two corps with assets. Otherwise, if a liability arises in the parent corp, one of the assets of the parent corp will be the stock in the subsidiary, so it would seem to me to be at risk. | |
| August 9, 2007 | |
| I agree, keep the Qsub idea, then, so that you have two corps for later ability to sell one and not the other, nor create a taxable event. Don't merge them whatever you do. | |
| 9 August 2007 | |
| I believe you could merge the two into one corporation tax free (IRC Sec. 368(a)(1)(A). However, Jessica's point about being able to sell one corporation while retaining the other has some merit. I'm still not sure about the liability issue -- that's a legal matter and not for us tax folks to determine <G>. | |
| 9 August 2007 | |
| KatieJ and everyone - thanks much for the input. This can be thorny.
KatieJ - do you know what the procedure is to merge the two without any tax consequences? I inherited this client with these two s corps and they just want to join the two. They are hard working people and they intend to sell the business, which markets chemicals, and retire. I thought the Qsub might be the way to go and we probably will do that next Janary 1, but I just don't want to create any tax consequences for them. The H & W own both companies and the k1's are reported on their 1040, so what's the risk in Qsub? I don't see any so far. Thank you all very much. | |
| 10 August 2007 | |
| Seems to me an A reorg (a statutory merger under the laws of the state where the corporations are organized, whereby one entity merges into the other and disappears) would be simpler. However, there may be good legal reasons to maintain two separate entities. From a tax perspective, the result is the same, I think. | |
| 10 August 2007 | |
| I HAVE A QSUB PROBLEM THAT PERHAPS SOMEONE CAN ASSIST ME WITH. AN S CORP BOUGHT THE STOCK OF A C CORP IN 2001. NO QSUB ELECTION WAS MADE, INSTEAD THE TAX PREPARER THOUGHT SHE COULD DO CONSOLIDATED RETURNS (NOT ALLOWED WITH AN S CORP)AND FOR 5 YEARS AN 1120S HAS BEEN FILED CONSOLIDATING THE S AND C CORP. THE S CORP ONLY OWNS THE STOCK, WITH LOTS OF INTEREST EXPENSE.
I INHERIT THE MESS. I AM BEYOND THE EASY WAY TO FIX A BOTCHED QSUB ELECTION. I AM BEING ADVISED THAT THE ONLY WAY TO NOW FIX IT IS WITH A PRIVATE LETTER RULING COSTING $6,000. PLUS CPA FEES. THE COMBINED NET INCOME 2001-2005 IS $310,000 AND DISTRIBUTIONS TO SHAREHOLDERS OF $182,000. I DON'T WANT TO GO TO IRS WITH A PLR REQUEST IF THEY ARE GOING TO SHOOT ME DOWN AND THEN GO AFTER BACK TAXES FOR THE C CORP, WITH NO WAY TO AMEND 2001-2003 FOR THE TAXES ALREADY PAID ON THE 1040s OF OWNERS. DOES ANYONE HAVE EXPERIENCE WITH FAILED QSUB ELECTIONS GOING BACK THIS FAR? ANY IDEAS ON HOW TO FIX GOING FORWARD WITHOUT DOING PLR REQUEST? | |
TheTinCook (talk|edits) said: | 10 August 2007 |
| You already asked this in this thread. You were advised to look at Rev. Proc. 2004-49 One of the procedures described in the Procedure involves filing the Form 8869, with "FILED PURSUANT TO REV. PROC. 2004-49" written on top, and with the effective date the date on which QSUB was made. The only question is if you can do this after Aug 16, 2005. This also assumes that the erstwhile QSUB was treated as a QSUB on the returns in question. | |
| 11 August 2007 | |
| I did look at Rev Proc 2004-49 and it appears that my client does not qualify as a qualified subsidiary as described. My question was not receiving any hits, so I decided to pose the question here. I am new to the Tax Almanac. I have to file this corp return by 9/15/07 and was searching in as many places as possible for a solution. I read the requirements for filing Form 8869, which should have been filed in 2001 but was not. I also read the requirements to fix a late filed 8869, but my client does not meet the requirements to use this solution either. So I decided to use the Tax Almanac in order to try and find a solution other than the private letter ruling. | |
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