Common use of Timing of the liquidation Clause in Contracts

Timing of the liquidation. (1) In general. Except as otherwise provided in paragraph (b)(3) or (4) of this sec- tion, the liquidation described in para- graph (a)(2) of this section occurs at the close of the day before the QSub election is effective. Thus, for example, if a C corporation elects to be treated as an S corporation and makes a QSub election (effective the same date as the S election) with respect to a sub- sidiary, the liquidation occurs imme- diately before the S election becomes effective, while the S electing parent is still a C corporation. (2) Application to elections in tiered sit- uations. When QSub elections for a tiered group of subsidiaries are effec- tive on the same date, the S corpora- tion may specify the order of the liq- uidations. If no order is specified, the liquidations that are deemed to occur as a result of the QSub elections will be treated as occurring first for the lowest tier entity and proceed successively up- xxxx until all of the liquidations under paragraph (a)(2) of this section have oc- curred. For example, S, an S corpora- tion, owns 100 percent of C, the com- mon parent of an affiliated group of corporations that includes X and Y. C owns all of the stock of X and X owns all of the stock of Y. S elects under § 1.1361–3 to treat C, X and Y as QSubs effective on the same date. If no order is specified for the elections, the fol- lowing liquidations are deemed to occur as a result of the elections, with each successive liquidation occuring on the same day immediately after the preceding liquidation: Y is treated as liquidating into X, then X is treated as liquidating into C, and finally C is treated as liquidating into S.