Starting this coming tax year, Form 8869, Qualified Subchapter S Subsidiary Election, will be used by every parent S Corporation for its eligible subsidiaries. This is a new form that is available from the IRS website by clicking Form 8869 or by calling 1-800-829-3676.
The Form is used to turn one of the Parent S Corporations eligible subsidiaries into a qualified subchapter S subsidiary. This Subsidiary becomes part of the parent corporation. With the introduction of the new form 8869, the form 966 no longer needs to be filed. The form 966 used to be filed for corporate dissolution or liquidation. By filing form 8869, the liquidation is considered to be a deemed liquidation. This way the new subsidiary is not treated as a separate corporation.
One of the main conditions for the Qualification is that the stock of the new domestic corporation is 100% owned by the parent S corporation. IRS has pointed out the following corporations that dont qualify for subchapter S subsidiary:
A bank or thrift institution that uses the reserve method of accounting for bad debts under section 585