X, an S corporation, owns 100 percent of Y. A QSub election is in effect with respect to Y.
On December 10, 2002, X sells one share of Y stock to A, an individual. Because X no longer owns 100 percent of the stock of Y, Y no longer qualifies as a QSub.
Accordingly, the QSub election made with respect to Y terminates at the close of December 10, 2002.
A qualified subchapter S subsidiary must be wholly owned by the S corporation parent at all times.
Selling a single share of Y to individual A means X no longer owns 100 percent, so Y fails the QSub requirement.
The QSub election terminates at the close of December 10, 2002, the day of the stock sale.
On termination, Y is treated as a new corporation that acquired its assets from the former QSub in a deemed transaction.
