Source: https://www.realestatecpa.pro/SCorporationNameChange.htm
Timestamp: 2019-02-21 07:52:13
Document Index: 488810626

Matched Legal Cases: ['§ 1', '§ 1', '§ 1', '§ 1', '§ 1', '§ 1', '§ 1']

S Corporation Name Changes
A new revenue ruling provides guidance for S corporations that undergo a type F reorgani­zation where the operating S corporation becomes a qualified Subchapter S subsidiary (QSub) of a new holding corporation. It also explains which employer identification number (EIN) each entity is to use and provides guidance for corporations that have already engaged in such a transaction.
Background on F reorganizations. Code Sec. 368(a)(1)(F) provides that a reorganization includes a mere change in identity, form, or place of organization of one corporation, however effected. In the case of an F reorganization, the acquiring corporation is treated (for purposes of Code Sec. 381) just as the transferor corporation would have been treated if there had been no reorganization. (Reg § 1.381(b)-1(a)(2)) Under Code Sec. 381, a corporation that acquires the assets of another corporation in certain tax-free reorganizations or liquidations also carries over numerous tax items of the transferor (predecessor) corporation.
Rev Rul 64-250, 1964-2 CB 333, provides that when an S corporation merges into a newly formed cor­poration in a transaction qualifying as an F reorganiza­tion and the newly formed surviving corporation also meets the requirements of an S corporation, the reorga­nization does not terminate the S election.
Background on QSubs. An S corporation cannot have a corporate shareholder. (Code Sec. 1361(b)(1)(B), Reg § 1.1361-1(f)) This rule ordinarily prevents a subsidiary from being an S corporation. However, an S corporation can have an S corporation subsidiary if it owns 100% of the subsidiary's stock, the sub is not an ineligible corpo­ration, and the S corporation parent elects (on Form 8869) to treat the subsidiary as a QSub. (Code Sec. 1361(b)(3)(B), Reg § 1.1361-2, Reg § 1.1361-3) A QSub isn't treated as a separate corporation for federal tax pur­poses; rather, its assets, liabilities, and items of income, deduction, and credit are treated as those of the parent S corporation. (Code Sec. 1361(b)(3)(A), Reg § 1.1361-4)
Background on EINs. Rev Rul 73-526, 1973-2 CB 404, concludes that the acquiring corporation in an F reorganization should use the EIN of the transferor cor­poration. However, since its publication, the Code was amended to create QSubs. Also, for tax years beginning after Dec. 31, 2004, Congress amended Code Sec. 136 1 (b)(3)(E) to provide that, except to the extent provided by IRS, QSubs are not disregarded for purposes of information returns and for certain other pur­poses as provided in regs. For example, Reg § 1.1361­4(a)(7) provides that a QSub is treated as a separate cor­poration for purposes of employment tax and related reporting requirements (effective for wages paid on or after Jan. 1, 2009), and Reg § 1.1361-4(a)(8) provides that a QSub is treated as a separate corporation for pur­poses of certain excise taxes (effective for liabilities imposed and actions first required or permitted in peri­ods beginning on or after Jan. 1, 2008).
Transaction in situation 1. B, an individual, owns all of the stock in Y, an S corporation. Y's FIN is 22­2222222. In Year 1, B forms Newco and contributes all of the Y stock to Newco. Newco meets the require­ments for qualification as an S corporation and timely elects to treat Y as a QSub, effective immediately fol­lowing the transaction, which qualifies as an F reorga­nization. In Year 2, Newco sells a 1% interest in Y to D.
Result in situation 1. Consistent with Rev Rul 64­250, Y's original S election does not terminate but con­tinues for Newco. Newco must obtain a new EIN. Y must retain its EIN (EIN 22-2222222) even though a QSub election is made for it and must use its original EIN any time the QSub is otherwise treated as a separate entity for federal tax purposes (including for employ­ment and certain excise taxes) or if the QSub election terminates. In Year 2, when Newco sells a 1% interest of Y to D, Y's QSub election terminates under Code Sec. 1361(b)(3)(C). Y must use its original EIN of 22­2222222 following the termination of its QSub election.
Transaction in situation 2. C, an individual owns all of the stock of Z, an S corporation. Z's EIN is 33-3333333. In Year 1, Z forms Newco, which in turn forms Mergeco. Pursuant to a plan of reorganization, Mergeco merges with and into Z, with Z surviving and C receiving solely Newco stock in exchange for Z stock. Newco meets the requirements for qualifica­tion as an S corporation and timely elects to treat Z as a QSub, effective immediately following the transaction, which qualifies as an F reorganization.
Result in situation 2. Consistent with Rev Rul 64­250, Z's original S election does not terminate but con­tinues for Newco. Newco must obtain a new EIN. Z must retain its EIN (E IN 33-3333333) even though a QSub election is made for Z and must use its original EIN any time the QSub is otherwise treated as a sepa­rate entity for federal tax purposes (including for employment and certain excise taxes) or if the QSub election terminates.
Effective date. Rev Rut 2008-18 applies to F reorga­nizations occurring on or after Jan. 1, 2009. For F reor­ganizations occurring on or after Mar. 7, 2008 and before Jan. 1, 2009, taxpayers may rely on Rev Rut 2008-18. IRS says it is aware that, before the effective date of Rev Rut 2008-18, some S corporations have undergone F reorganizations in a manner similar to those described in Situations I and 2 above in which the acquiring corporation continued to use the transferor corporation's EIN in an effort to comply with Rev Rut 73-526. In those cases, IRS says the acquiring corpora­tion should continue to follow Rev Rut 73-526 and use the transferor corporation's FIN, and furthermore, after the F reorganization, the transferor (QSub) should use the parent's EIN until such time the transferor (QSub) is otherwise treated as a separate corporation for feder­al tax purposes (including for employment and certain excise taxes) or until such time that the QSub termi­nates. At that time, the QSub must obtain a new FIN.