Corporation X, pursuant to a plan, acquires all of the outstanding stock of corporation Y from the shareholders of Y solely in exchange for 10 percent of the voting stock of X. Prior to the transaction, Y and its shareholders are unrelated to X.
Thereafter, as part of the same plan, X immediately makes an S election and a QSub election for Y.
The transaction is a reorganization described in section 368(a)(1)(C), assuming the other conditions for reorganization treatment, such as continuity of business enterprise, are satisfied.
X acquires all of Y’s stock in exchange solely for 10 percent of X’s voting stock, with the former Y shareholders receiving X stock.
As part of the same plan, X makes an S election for itself and a QSub election for Y.
The combined steps are treated as a reorganization described in section 368(a)(1)(C), assuming the other reorganization requirements are met.
Reorganization treatment depends on satisfying the non-statutory tests, including continuity of business enterprise.
