Common use of Transfer of 100 percent of QSub Clause in Contracts

Transfer of 100 percent of QSub. X, an S corporation, owns 100 percent of the stock of Y, a corporation for which a QSub election is in effect. Z, an unrelated C cor- poration, acquires 100 percent of the stock of Y. The deemed formation of Y by X (as a consequence of the termination of Y’s QSub election) is disregarded for Federal income tax purposes. The transaction is treated as a transfer of the assets of Y to Z, followed by Z’s transfer of these assets to the capital of Y in exchange for Y stock. Furthermore, if Z is an S corporation and makes a QSub elec- tion for Y effective as of the acquisition, Z’s transfer of the assets of Y in exchange for Y stock, followed by the immediate liquidation of Y as a consequence of the QSub election are disregarded for Federal income tax pur- poses.