Instruction for consolidating corporation returns

This pitfall arises because the stock was purchased, but the assets were sold.

The carryover asset basis is substituted for the purchase price of the stock in a QSub election, and no tax deductible loss may be recognized.

The difference between the

This pitfall arises because the stock was purchased, but the assets were sold.The carryover asset basis is substituted for the purchase price of the stock in a QSub election, and no tax deductible loss may be recognized.The difference between the $1 million stock purchase price and the $100,000 carryover asset basis is not tax goodwill, because the acquisition of the existing corporation was a stock rather than an asset purchase.While this result seems counterintuitive and even unfair, it makes sense from a tax perspective.

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This pitfall arises because the stock was purchased, but the assets were sold.

The carryover asset basis is substituted for the purchase price of the stock in a QSub election, and no tax deductible loss may be recognized.

The difference between the $1 million stock purchase price and the $100,000 carryover asset basis is not tax goodwill, because the acquisition of the existing corporation was a stock rather than an asset purchase.

While this result seems counterintuitive and even unfair, it makes sense from a tax perspective.

Congress believed that, in such situations, shareholders should be allowed to arrange these separate corporate entities under parent-subsidiary arrangements as well as under brother-sister arrangements.

For a business reason such as segregation of assets and liabilities or maintenance of contractual obligations, it may be prudent to establish certain S corporation operations in a separate subsidiary.

For federal income tax purposes, the QSub is not treated as a separate corporation.

All assets, liabilities and items of income, deduction and credit of the QSub are treated as assets, liabilities and such items of the S corporation.

million stock purchase price and the 0,000 carryover asset basis is not tax goodwill, because the acquisition of the existing corporation was a stock rather than an asset purchase.

While this result seems counterintuitive and even unfair, it makes sense from a tax perspective.

Congress believed that, in such situations, shareholders should be allowed to arrange these separate corporate entities under parent-subsidiary arrangements as well as under brother-sister arrangements.

For a business reason such as segregation of assets and liabilities or maintenance of contractual obligations, it may be prudent to establish certain S corporation operations in a separate subsidiary.

For federal income tax purposes, the QSub is not treated as a separate corporation.

All assets, liabilities and items of income, deduction and credit of the QSub are treated as assets, liabilities and such items of the S corporation.

Instead, assume that the S corporation acquires the stock of an existing corporation for

Instead, assume that the S corporation acquires the stock of an existing corporation for $1 million.

While this treatment is favorable for operating results, it may create a pitfall if the QSub is sold.

Because the QSub is treated as a division of the S corporation for federal income tax purposes, a sale of the stock of a QSub is actually an asset sale for federal income tax purposes.

Assume that an S corporation plans to expand its operations into another state.

The company's lawyers recommend the use of a separate legal entity.

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Instead, assume that the S corporation acquires the stock of an existing corporation for $1 million.While this treatment is favorable for operating results, it may create a pitfall if the QSub is sold.Because the QSub is treated as a division of the S corporation for federal income tax purposes, a sale of the stock of a QSub is actually an asset sale for federal income tax purposes.Assume that an S corporation plans to expand its operations into another state.The company's lawyers recommend the use of a separate legal entity.

million.While this treatment is favorable for operating results, it may create a pitfall if the QSub is sold.Because the QSub is treated as a division of the S corporation for federal income tax purposes, a sale of the stock of a QSub is actually an asset sale for federal income tax purposes.Assume that an S corporation plans to expand its operations into another state.The company's lawyers recommend the use of a separate legal entity.

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Also, an S corporation is not eligible to join in a federal consolidated return.

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