Parent S corporations use Form 8869 to elect to treat eligible subsidiaries as a qualified subchapter S subsidiary (QSub), resulting in a deemed liquidation of the subsidiary into the parent. This lead explains the purpose, procedures, and rules of making the QSub election.
What is Form 8869?
Form 8869 is used by a parent S corporation to elect to treat one or more of its eligible subsidiaries as a Qualified Subchapter S Subsidiary (QSub). This election allows for the subsidiaries assets, liabilities, and items of income, deduction, and credit to be treated as those of the parent and results in a deemed liquidation. It must be noted that no final return is necessary if the election is being made pursuant to a reorganization. Furthermore, only domestic corporations who are 100% owned by an S corporation are eligible and certain corporations such as banks, insurance companies and DISCs are ineligible. The election must be filed with the service center where the subsidiary filed its most recent return and the corporation will receive a notification within 60 days of acceptance or non-acceptance of the election. Once the election is made, it remains in effect until it is terminated, with IRS consent necessary for another QSub election for any tax year before the fifth one after the first year the termination took effect.
IRS Form 8869 – Who Needs to Fill It Out?
IRS Form 8869 needs to be filled out by a parent S corporation who wishes to elect to treat one or more of their eligible subsidiaries as a qualified subchapter S subsidiary (QSub), resulting in a deemed liquidation of the subsidiary into the parent. The election must be made for an eligible subsidiary at any time during the tax year, with a requested effective date within 12 months of filing the form or within 2 months and 15 days prior to filing the form. Once accepted, the election remains in effect until terminated.
Step-by-Step: Form 8869 Instructions For Filling Out the Document
Filling out Form 8869 is the first step to electing to treat an eligible subsidiary of a parent S corporation as a qualified subchapter S subsidiary (QSub). This type of election is considered a deemed liquidation for federal tax purposes and has the result of all assets, liabilities, and items of income, deduction, and credit of the subsidiary being treated as those of the parent. After submitting Form 8869, be sure to note the date you requested the election to take effect, since the effective date cannot be greater than 12 months after the date the election was filed or more than 2 months and 15 days before the date it was filed. Make sure your selected subsidiary is an eligible corporation, as ineligible corporations, such as banks and insurance companies, are not permitted. Following submission, the parent S corporation should receive a notification of acceptance or nonacceptance of the QSub election within 60 days. If the election is accepted, then the QSub status will remain in effect until it is terminated.
Below, we present a table that will help you understand how to fill out Form 8869.
|Form Name||Form 8869|
|Purpose||Elect to treat an eligible subsidiary of a parent S corporation as a qualified subchapter S subsidiary (QSub).|
|Filing Requirements||Ensure the selected subsidiary is an eligible corporation. Note the effective date and submit. Parent S corporation should receive notification within 60 days if the election is accepted.|
|Additional Information||Ensure compliance with eligibility rules. The QSub status will remain in effect until terminated.|
Do You Need to File Form 8869 Each Year?
Form 8869 is used for the election of qualified subchapter S subsidiary (QSub) by an S corporation parent. This election results in a deemed liquidation of the subsidiary into the parent, which means that for federal tax purposes, the QSub will not be considered a separate corporation. To make a valid election, the eligible subsidiary must be owned 100% by an S corporation and must meet any other criteria set out by the Internal Revenue Code. The parent S corporation can use the QSub election at any time during the tax year, but should submit Form 8869 to the service center where the subsidiary filed its most recent return. The corporation should receive notice of acceptance or nonacceptance within sixty days, and if the election is accepted, it will remain in effect until terminated. In order to terminate the election, IRS consent will generally be required for any new QSub elections for five tax years after the first year the termination took effect.
Download the official IRS Form 8869 PDF
On the official IRS website, you will find a link to download Form 8869. However, to make it easier for you, we are providing the link in our article, which comes directly from the official irs.gov website! Click to download: Form 8869