I have a new client who has a S-Corp that has shares in another S-Corp. How can I unwind this situation.
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How does a S-corp own shares is another S corp? Are you talking about a qualified S subsidiary?Originally posted by S&D Associates View Post -
Better hope so - qualify sub is the only ownership that could work.Comment
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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?Originally posted by kathyc2 View PostComment
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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?Originally posted by S&D Associates View PostComment
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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.Comment
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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
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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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