I’ll Have a QSub—and Hold the Onions!

While we await changes from Congress with tax impact (see “Legislative Corner,” below), we bring your focus to the value of a Qualified Subchapter S subsidiary (QSub or QSS) in S corporation tax planning. 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. Where all tax requirements are met, an S corporation making a QSub election for its subsidiary can avoid treating its next-tier trades or businesses as C corporations.

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Practical Guidance Updates
Featuring the latest updates from your Practical Guidance account.  

• Tax Key Legal Developments Tracker (Federal)
  Stay informed on new developments.
  • Business Entities
    IRS amplifies Rev. Proc. 2021-3, which lists areas of the Code relating to issues on which the IRS will not issue letter rulings or determination letters. IRS announces that it will not issue letter rulings on whether certain transactions are self-dealing within the meaning of I.R.C. Section 4941(d). Specifically, the Service will not issue rulings on whether an act of self-dealing occurs when a private foundation (or other entity subject to section 4941) owns or receives an interest in a limited liability company or other entity that owns a promissory note issued by a disqualified person. Rev. Proc. 2021-40.
  • International Tax
    IRS provides that the domestic asset and liability percentages used to determine foreign insurance companies’ U.S. taxable income for tax year 2020 are 130.9% for life insurance and 217.3% for property and liability insurance companies. Rev. Proc. 2021-41.
• Legislative Corner
  • House Committee on Ways & Means, Report on Internal Revenue Code Changes, Section-by-Section. Note that reforms include:
    • Increase in maximum corporate rate to 26.5%
    • Limit on deduction of interest by certain domestic corporations that are members of an international financial reporting group
    • Modifications to deductions for foreign-derived intangible income (FDII) and global intangible low-taxed income (GILTI)
    • Modifications of foreign tax credit (FTC) rules applicable to certain taxpayers receiving specific economic benefits
    • Tax increases for high-income individuals, including increasing the top marginal individual income rate to 39.6%, increasing the capital gains rate for certain high-income individuals, and adding a surcharge on high-income individuals, trusts, and estates
  • Joint Committee on Taxation, Bluebook Template (JCX-43-21, Sept. 14, 2021)

• Document alerts allow you to stay current on legal developments that affect your practice. Find out how to set up your document alerts.

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