Qualified Subchapter S Subsidiaries in S Corporations

Summary

This practice note discusses the qualified Subchapter S subsidiary (QSub or QSSS). The basic idea of a QSub is to allow the S corporation to report its subsidiaries as divisions for federal income tax purposes, rather than as separate corporations. The Internal Revenue Code (IRC) thus disregards QSubs as entities for federal income tax purposes, collapsing the QSubs into the single S corporation. Of course, the IRC imposes various restrictions for this simplified tax reporting. Among these requirements are that the S corporation must make the proper election and must own 100% of the QSub.