Tax Guru – Ker$tetter Letter

Q:

Subject: S corps

Just read your article – have a couple of questions.

 

1.  Can an S corp own another S corp with the second S corp having addl shareholders?

 

2.  Is there an S corp structure that does not allow addl stockholders.  For instance – you have an S corp -as an S corp another entity is purchased – can the addl entity have additional owners or must they be the same as the parent S corp.  The purchased entity not being an S Corp.

 

I guess both of these questions are basically the same.  What I have is an S corp for sale, possibly being purchased by another S corp…..the stockholders of the purchasing S Corp have indicated they CANNOT have other stockholders for just the new purchase.  It has been indicated that the purchasing S corp is some special type of S corp….

 

Anyway – any information would be helpful.

 

Thanks!

A:

This is most definitely a very complicated area where a professional tax advisor should be involved. 

There are ways for an S corp to own another S corp as what is called a QSub (Qualified Subchapter S Subsidiary).  You can check IRS Form 8869  and see what is involved.

Good luck.

Kerry Kerstetter