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How to unwind S-Corp that owns shares in another S-Corp

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    How to unwind S-Corp that owns shares in another S-Corp

    I have a new client who has a S-Corp that has shares in another S-Corp. How can I unwind this situation.

    #2
    Originally posted by S&D Associates View Post
    I have a new client who has a S-Corp that has shares in another S-Corp. How can I unwind this situation.
    How does a S-corp own shares is another S corp? Are you talking about a qualified S subsidiary?

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      #3
      Better hope so - qualify sub is the only ownership that could work.

      Comment


        #4
        Originally posted by kathyc2 View Post
        How does a S-corp own shares is another S corp? Are you talking about a qualified S subsidiary?
        Unfortunately, the S-Corp was set up incorrectly. It is a S-Corp owning shares in another S-Corp. I'm trying to unwind this terrible situation for the client. Have you any suggestions?

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          #5
          Originally posted by S&D Associates View Post
          Unfortunately, the S-Corp was set up incorrectly. It is a S-Corp owning shares in another S-Corp. I'm trying to unwind this terrible situation for the client. Have you any suggestions?
          Technically having a corp as a shareholder invalidates their S election. Was it just an error in the year of start-up or has it been a number of years?

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            #6
            Expand on details

            The question you posed is very short on details. Expanding on them will help people help you.

            Let's call the S that issued stock to the other S company H and the other company R.

            Does H have shareholders other than the S?
            Does R have 1 individual shareholder or more?
            Are both companies corporations that elect S status, or is one or both a LLC electing S status?
            Did H issue a K1 to R and did R report it as income?
            How many years are involved?
            Did both report profit for all years involved?
            Has IRS questioned H?
            Last edited by kathyc2; 01-20-2018, 09:05 AM.

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              #7
              H has shareholders other than R
              R has more than 1 shareholder
              Both companies elected S Status
              H issued K-1 and R reported it as income
              At least 5 years
              H had mostly lost years. R had income years
              No

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                #8
                Sounds like the S election became invalid when they accepted a corporate shareholder. With several shareholders involved, I personally wouldn't touch this. If you choose to continue on make sure you are well versed in inadvertent terminations.

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