Liquidating qsss qsub
Notwithstanding the above, a Massachusetts S corporation parent's items of income, loss, deduction, and credit, together with those of its QSUB(s), continue to pass through and be taxable to shareholders to the extent such pass through is required under G. Directive 1: Merging a Massachusetts corporate trust parent into its QSUB will not trigger the recognition of any taxable income to either entity or to the shareholders of the corporate trust as long as the merger qualifies as a tax-free "F" reorganization for federal income tax purposes. The formation of the new corporation for tax purposes and the merger of the S corporation parent into it would qualify as a tax-free "F" reorganization under Example 8, if the transaction otherwise satisfies the requirements of that subsection. Will merging a corporate trust into its QSUB accomplish that goal? Restoring the organizational structure and tax treatment that typically applied to taxpayers before LR 99-17 can be accomplished using the above restructuring as long as it qualifies as a tax-free "F" reorganization for federal income tax purposes and the corporation formed as a result is eligible to treat itself as a federal S corporation.
Issue 1: Unwinding of LR 99-17 Reorganizations - Downstream Merger of Massachusetts Corporate Trust Parent into QSUB Will the merger of a Massachusetts corporate trust parent into its QSUB trigger the recognition of any taxable income to either entity or to the shareholders of the corporate trust? In Example 8, it is stated that the S corporation parent would merge into the QSUB under state law, causing the QSUB election to terminate, resulting in the formation of a new corporation for tax purposes into which the S corporation parent would merge. 62, § 8(a), wherein it is stated that a corporate trust is treated as a corporation for purposes of I. Typically, prior to LR 99-17, taxpayers were classified as stand-alone S corporations for both federal and Massachusetts tax purposes.
As a result, many tax practitioners have sought Department of Revenue ("Department") guidance because their clients are contemplating reverting to their pre-LR 99-17 organizational structures, or reorganizing in some other way.
4, § 18, the Massachusetts tax incentive to reorganize an S corporation as a QSUB of a corporate trust, partnership, or other entity parent has been largely eliminated. Additionally, in determining the partnership's apportionment factors, the partnership must take into account the property, payroll, and sales of the QSUB before it ceased to exist for Massachusetts tax purposes. Discussion: In reallocating estimated payments to the proper accounts, the procedures set out in TIR 01-3 should be followed.
63, § 32(a)(2), § 39(a)(2), and § 32D(i) and (ii), as applicable. The exception is applicable only to a QSUB's taxable year that includes March 5, 2003. Additionally, any unused amount of credit or loss may be carried over to the S corporation's succeeding taxable years. The Massachusetts S corporation must compute any non-income measure of the corporate excise it may owe in the year of the reorganization based not only on its own assets and liabilities but on those of the QSUB and corporate trust prior to the reorganization, assuming that such items were acquired by the S corporation as a result of the reorganization and continue to be held by it on the last day of its taxable year. First, the credit must be claimed by striking out one of the S corporation's unused credits on Form 355S, line 7 through 17, and adding on the dotted line next to the struck language the words "QSUB credit allowed under Directive 3 of Directive 04-1." Second, a copy of the QSUB's Form 355S must be attached to the Form 355S filed by the Massachusetts S corporation. Completing Massachusetts S Corporation's Schedule SK-1 in the Year of the Reorganization. Additionally, in determining the corporate trust's apportionment factors for purposes of its Form 3F, the corporate trust must take into account the property, payroll, and sales of the QSUB up until it ceases to exist for Massachusetts tax purposes. The aggregated total receipts may be adjusted to avoid double counting but must include income taxable at the entity level under G. If the taxable year in which the reorganization takes place includes March 5, 2003, the QSUB must include in its calculation all of its receipts for such taxable year, without regard to the March 5, 2003 date. 63, § 32D (a)(i) and (ii) of the corporate excise, any non-income measure of the corporate excise, and its apportionment factors as specified in subsections B, C, and D of the Discussion section in Directive 3 above. Is this factual difference significant, or, will Directives 1, 2, 3, 4, and 5 above, applicable to LR 99-17 type reorganizations, apply to the unwinding of a LR 01-9 type reorganization? Thus, both the surviving Massachusetts corporate trust and the QSUB will file returns and report income and other tax attributes for the taxable year in which the reorganization takes place as specified in Directive 5. The QSUB, however, will file returns and report income and other tax attributes for the taxable year in which the reorganization takes place exactly as specified in Directive 3. 63, § 1, will not be subject to the non-income measure of the corporate excise imposed under G. Directive 7: No taxable income will be recognized by the partners/shareholders for Massachusetts income tax purposes upon the distribution of property in complete dissolution of the partnership parent, , in unwinding a LR 01-1, 02-3, or 02-7 type reorganization by merging a partnership parent into its QSUB.
Additionally, a QSUB's income also continues to be taxed to its parent, if its parent is a non-S corporation parent such as a Massachusetts corporate trust or financial institution, or to its partners if it is a partnership. Before the issuance of that ruling, most of these clients operated simply as stand-alone Massachusetts S corporations. Accordingly, merging a Massachusetts corporate trust parent into its QSUB will not trigger the recognition of any taxable income to either entity or to the shareholders of the corporate trust as long as the merger qualifies as a tax-free "F" reorganization for federal income tax purposes. More likely however, the QSUB used its corporate trust parent's taxpayer identification number in filing its Form 355S, in which case a second note should be added to the QSUB's final return stating that "the taxpayer identification number appearing on this return will continue to be used by the S corporation formed as the result of the F reorganization described in Directive 1 of Directive 04-1, when filing its Form 355S with the Commonwealth." C. The Massachusetts corporate trust is not required to file a final return in the taxable year in which the reorganization takes place. In computing the aggregated total receipts, each entity required to aggregate total receipts must first compute its total receipts separately for the taxable year in which the reorganization takes place. Also, an actual accounting of the QSUB's net income for the period must be made. Computing QSUB's Non-Income Measure of Corporate Excise. A short taxable year is the only case in which the General Laws specifically allows for proration of the non-income measure of the corporate excise based on the number of months in the short year. 63 based solely on its own property, payroll, and sales. §§ 332 and 337 allowing for a tax-free liquidation of a subsidiary been allowed, those two sections do not represent the authority for this Directive. § 1.1361-4, the original QSUB election in the earlier LR 99-17 transaction resulted in the deemed liquidation of the QSUB into the S corporation for federal income tax purposes whether the liquidation was governed by IRC §§ 332, 337 or 368. The only factual difference between the two is that in LR 01-9, the stand-alone Massachusetts S corporation turned QSUB is a "financial institution" within the meaning of G. Thus, Directives 1, 2, and 4, will apply to the earlier case. 62, § 8 as a corporate trust, not as a financial institution under G. Pursuant to Example 8, the IRS characterizes the merger of an S corporation parent into its QSUB as a tax free "F" reorganization. 4, § 18, effective March 5, 2003, the QSUB also is required to report on its Form 355S the income measure of the corporate excise under G. Thus, the QSUB must file a final Form 355S (even though, as discussed in Directive 2, the same legal entity survives as a Massachusetts S corporation) to report any corporate excise it may owe for the taxable year in which the reorganization takes place. If the QSUB had obtained a separate federal taxpayer identification number for use in filing its Form 355S such words will serve as notice to the Department that the QSUB's federal taxpayer identification number is no longer applicable. In the event that the reorganization takes place in a subsequent year, the period for which the QSUB must compute its net income will begin on the first day of its taxable year and end on the date it ceases to exist for Massachusetts tax purposes. Computing Massachusetts S Corporation's Net Income Subject to Tax Under G. The Massachusetts S corporation's non-income measure of the excise may not be prorated, because, as discussed in subsection A immediately above, the S corporation's taxable year is not a short taxable year. In completing a Schedule SK-1 for the taxable year in which the reorganization takes place, the Massachusetts S corporation must include thereon not only its own items of income, loss, deduction, and credit for the taxable year, but those of the QSUB and the corporate trust before they ceased to exist for Massachusetts income tax purposes. Determining Massachusetts S Corporation's Apportionment Factors. The Massachusetts S corporation must determine its apportionment factors in the year of the reorganization for purposes of determining its income measure of the corporate excise under c. For purposes of its final Form 355S, the QSUB must compute any net income subject to tax under G. Issue 6: Unwinding of LR 01-9 Reorganizations - Downstream and Upstream Mergers Involving a Financial Institution A LR 01-9 type reorganization, just like a LR 99-17 type reorganization, involves the restructuring of a stand-alone Massachusetts S corporation by converting it into a wholly owned subsidiary, a QSUB, of a corporate trust holding company. Directive 6: Notwithstanding the factual difference, the unwinding of a LR 01-9 type reorganization is generally no different from the unwinding of a LR 99-17 type reorganization. Corporate trusts generally fall outside the definition of financial institution in G. Directive 3, in contrast, which discusses what returns to file and how to report income and other tax attributes as a result of a merger of a corporate trust parent into its QSUB, applies only in part to the unwinding of a LR 01-9 type reorganization, as the Massachusetts S corporation formed as a result of the merger will be taxed as a financial institution under G. Discussion: In unwinding a LR 01-9 reorganization as discussed in Directive 3 (by merging a corporate trust parent into its QSUB), the resulting S corporation which is also a "financial institution" within the meaning of G. Discussion: Federally, the partnership parent is an S corporation and, thus, the merger would be identical to the one set forth in Treas. § 1.1361-5(b)(3), Example 8, discussed in Directive 1 above.Each book covers a category of tax planning topics that easily save a business owner significant amounts of income or self-employment taxes (potentially thousands of dollars a year) and is instantly downloadable.Corporate Excise/Personal Income Tax Introduction: Prior to St. 4, § 18, effective March 5, 2003, a qualified subchapter S subsidiary ("QSUB"), as defined under I.