The facts are the same as in Example 4, except that Z acquires 80 percent of the stock of Y (instead of X) on June 1, 2002.
In this case, Y’s QSub election terminates as of the close of June 1, 2002, and, under § 1.1502-76(b)(1)(ii)(A)(1), Y becomes a member of the consolidated group at that time.
Because the acquisition is of the subsidiary rather than the parent, X remains an S corporation and only Y’s QSub status is lost.
Z acquires 80 percent of Y, the QSub, rather than the S corporation parent X.
Because the parent no longer owns 100 percent of Y, the QSub election terminates as of the close of June 1, 2002.
Unlike Example 4, X is not acquired, so X remains an S corporation after the transaction.
Y becomes a member of Z’s consolidated group of corporations as of the close of June 1, 2002.
