[정부부처 자료] 기타
| 제목 | IRS Issues Final Regs for QSubs (Qualified Subchapter S Subsidiaries) | ||
|---|---|---|---|
| 기관명 | 기타 | 작성일자 | 2000 . 01 . 28 |
|
Rules Affect Corporate Subsidiaries of S Corporations On Thursday, January 20, 2000, the IRS released the final Qualified Subchapter S Subsidiaries (QSub, formerly QSSS) regulations under Sec. 1361 on the treatment of corporate subsidiaries of S corporations. Overall, the QSub regulations were very taxpayer friendly and contained many new illustrative examples. The regulations are effective for taxable years beginning on or after January 20, 2000. However, taxpayers may elect to apply the regulations in whole, but not in part, for taxable years beginning on or after January 1, 2000, provided the corporation and all affected taxpayers apply the regulations in a consistent manner. Provisions of the new regulations include: Step Transaction Doctrine Under the proposed regulations, when an S corporation makes a valid QSub election with respect to a subsidiary, the subsidiary is deemed to have liquidated into the parent S corporation immediately before the QSub election is effective. The tax treatment of this liquidation is determined under the Code and general principles of tax law, including the step transaction doctrine. The proposed regulations included a special transition rule. It applies to certain elections effective prior to the date that is 60 days after publication of final regulations in the Federal Register. The transition rule suspends the application of the step transaction doctrine with respect to the acquisition of stock followed by a QSub election if the S corporation and the subsidiary are related (as defined in Sec. 267(b)) prior to the acquisition of the subsidiary's stock. After considering the comments, the final regulations continue to provide that general principles of tax law, including the step transaction doctrine, apply to determine the tax consequences of transactions that include a QSub election. However, the final regulations provide an extended transition period during which step transaction will be suspended. The transitional relief period will be extended to QSub elections effective before January 1, 2001. PwC Observes: If an S corporation or its shareholders are restructuring ownership interests to take advantage of the new QSub rules, they should do so by December 31, 2000. After that date, the IRS may collapse the restructuring steps with the deemed liquidation caused by the QSub election, which could produce tax results less favorable had the step transaction doctrine not applied. "F" Reorganizations During the Transition Period During the extended transition period provided in the final regulations, the IRS will not challenge taxpayers who apply the step transaction doctrine to an acquisition of stock followed by a QSub election, and thereby obtain tax treatment similar to a valid reorganization under Sec. 368(a)(1)(F) if, without regard to the transition rule, the transaction would properly qualify as such a reorganization. Timing of Adoption of Plan of Liquidation In order to provide tax treatment for the constructive liquidation incident to a QSub election that is compatible with the requirements of Sec. 332, the proposed regulations included a provision that the making of a QSub election satisfies the requirement of adopting a plan of liquidation. The final regulations provide that for purposes of satisfying the requirement of Sec. 332(b) that the parent corporation own stock in the subsidiary meeting the requirements of Sec. 1504(a)(2) on the date of adoption of the plan of liquidation of the subsidiary, the plan of liquidation is deemed adopted immediately before the deemed liquidation incident to a QSub election, unless a formal plan of liquidation that contemplates the filing of the QSub election is adopted on an earlier date. If as a result of the application of general tax principles the transactions that include the QSub election are treated as an asset acquisition, Sec. 332 is not applicable and this rule has no relevance. Insolvent Subsidiaries One comment recommended that a QSub election made for an insolvent subsidiary be eligible for tax-free treatment under Sec. 332. Generally, Sec. 332 does not apply to the liquidation of an insolvent corporation, because the parent corporation does not receive at least partial payment for the stock of its subsidiary. The IRS did not believe that the legislative history under the QSub provisions indicated that Sec. 332 applies to the liquidation of an insolvent subsidiary corporation. Therefore, the final regulations do not adopt such a position. Consolidated Group Issues Under the proposed regulations, no order was assigned to the timing of the deemed liquidations for a tiered group of corporations for which QSub elections are made (effective on the same date). The ordering is significant for purposes of the triggering of an Excess Loss Account (ELA) under Reg. Sec. 1.1502-19. The final regulations allow the S corporation to specify the order of the deemed liquidations when QSub elections are made (effective on the same day) for a tiered group of subsidiaries. In default of an election, the deemed liquidations occur in succession on the effective date of the election, beginning with the lowest tier subsidiary. PwC Observes: Greg Smith, of PwC's Washington National Tax Services, explains, "If a consolidated group of C corporations with ELAs between its members desires to elect S corporation status on the parent and QSub status on its subsidiaries, it is important to analyze the ordering of the QSub liquidations into the parent to ensure no ELAs are triggered." QSub Election Eligibility The final regulations provide that, for purposes of determining whether the a corporate subsidiary is wholly-owned by its S corporation parent, any instrument, obligation, or arrangement that would not be considered stock under the one-class-of-stock rules of Reg. Sec. 1.1361-1(l) are disregarded in determining the stock ownership requirements. Similarly, the final regulations indicate that the rules under Reg. Sec. 1.1504-4 (relating to the deemed exercise of options in a Sec. 332 liquidation context) do not apply if the instrument, obligation, or arrangement would not be considered stock under the one-class-of-stock rules of Reg. Sec. 1.1361-1(l) QSub Election Procedure IRS Notice 97-4, released January 13, 1997, provided a procedure for making a Qsub election. The preamble to the final regulations advises taxpayers to continue to follow that Notice until the Qsub election form is published. Step Transaction Doctrine Under Sec. 1361(b)(3)(C), if a QSub election terminates, the corporation is treated as a new corporation acquiring all of its assets (and assuming all of its liabilities) from the S corporation in exchange for stock of the new corporation immediately before the termination. The proposed regulations provided that this transaction or of a larger transaction that includes this transaction will be determined under the Code and general principles of tax law, including the step transaction doctrine. The final regulations continue to apply the step transaction doctrine to the termination of a QSub election and provide examples. PwC Observes: "If an S corporation parent is selling less than 100 percent and more than 20 percent of the stock in one its QSubs, it may be advantageous to merge the QSub into a single member limited liability company (SMLLC) and sell LLC interests instead to defer the gain on the retained stock," continues Mr. Smith. Consolidated Group Issues The proposed regulations were silent on the ordering rules taxpayers should follow when a chain of QSubs simultaneously terminates. The final regulations provide that terminations occur in succession, beginning with the upper-tier subsidiary, and include several examples. Inadvertent QSub Election and Inadvertent Termination Relief The proposed regulations provided that inadvertent QSub termination relief may be available under standards established by the Commissioner for inadvertent termination of an S election under Reg. Sec. 1.1362-4. The final regulations do not include that provision relating to the inadvertent termination of a QSub election. The removal of that provision is not intended to suggest that relief under section 1362(f) is not available in appropriate circumstances, but is intended to avoid confusion with respect to the scope of the IRS's statutory authority under Sec. 1362(f). Banking Provisions The final regulations provide that any special rules applicable to banks under the Code continue to apply separately to banks as if the deemed liquidation incident to a QSub election had not occurred (the banking provisions). The banking provisions apply to tax years beginning after December 31, 1996. This rule applies to all taxpayers and is not subject to an election. Taxpayer Identification Numbers The final regulations restate the general rules that (1) when an entity's classification changes as a result of an election, it retains its EIN; and (2) unless regulations or published guidance provide otherwise, a disregarded entity (including a QSub) must use its owner's EIN for Federal tax purposes. IRS Notice 99-6 provided that, in limited circumstances, a disregarded entity may use its own EIN. If a QSub wishes to use its own EIN in accordance with Notice 99-6 but did not have an EIN prior to becoming a QSub, it must apply for a new EIN. If a subsidiary's QSub election terminates, the new corporation formed as a result of that termination must use its own EIN for Federal tax purposes. If the new corporation had an EIN before the effective date of its QSub election or during its QSub status, it should use that EIN. Otherwise, the new corporation must apply for a new EIN. |