Corporation X acquires all of the outstanding stock of solvent corporation Y from an unrelated individual for cash and short-term notes. Thereafter, as part of the same plan, X immediately makes an S election and a QSub election for Y.
Because X acquired all of the stock of Y in a qualified stock purchase within the meaning of section 338(d)(3), the liquidation described in paragraph (a)(2) of this section is respected as an independent step separate from the stock acquisition.
The tax consequences of the deemed liquidation are determined under sections 332 and 337. After the transaction, Y is a qualified subchapter S subsidiary of X.
X buys 100 percent of Y’s stock for cash and short-term notes, satisfying the qualified stock purchase definition of section 338(d)(3).
As part of the same plan, X makes an S election for itself and a QSub election for Y so that Y is treated as a qualified subchapter S subsidiary.
Because the stock was acquired in a qualified stock purchase, the deemed liquidation is treated as independent of the acquisition.
The tax consequences of the deemed liquidation of Y into X are determined under sections 332 and 337.
