Qualified Subchapter S Trust (QSST) Election

§ 1361. S corporation defined(a) S corporation defined(1) In generalFor purposes of this title, the term “S corporation” means, with respect to any taxable year, a small business corporation for which an election under section 1362(a) is in effect for such year. (2) C corporationFor purposes of this title, the term “C corporation” means, with respect to any taxable year, a corporation which is not an S corporation for such year. (b) Small business corporation(1) In generalFor purposes of this subchapter, the term “small business corporation” means a domestic corporation which is not an ineligible corporation and which does not—(A) have more than 100 shareholders, (B) have as a shareholder a person (other than an estate, a trust described in subsection (c)(2), or an organization described in subsection (c)(6)) who is not an individual, (C) have a nonresident alien as a shareholder, and (D) have more than 1 class of stock. (2) Ineligible corporation definedFor purposes of paragraph (1), the term “ineligible corporation” means any corporation which is—(A) a financial institution which uses the reserve method of accounting for bad debts described in section 585, (B) an insurance company subject to tax under subchapter L, or (C) a DISC or former DISC. (3) Treatment of certain wholly owned subsidiaries(A) In generalExcept as provided in regulations prescribed by the Secretary, for purposes of this title—(i) a corporation which is a qualified subchapter S subsidiary shall not be treated as a separate corporation, and (ii) all assets, liabilities, and items of income, deduction, and credit of a qualified subchapter S subsidiary shall be treated as assets, liabilities, and such items (as the case may be) of the S corporation. (B) Qualified subchapter S subsidiaryFor purposes of this paragraph, the term “qualified subchapter S subsidiary” means any domestic corporation which is not an ineligible corporation (as defined in paragraph (2)), if—(i) 100 percent of the stock of such corporation is held by the S corporation, and (ii) the S corporation elects to treat such corporation as a qualified subchapter S subsidiary. (C) Treatment of terminations of qualified subchapter S subsidiary status(i) In generalFor purposes of this title, if any corporation which was a qualified subchapter S subsidiary ceases to meet the requirements of subparagraph (B), such corporation shall be treated as a new corporation acquiring all of its assets (and assuming all of its liabilities) immediately before such cessation from the S corporation in exchange for its stock. (ii) Termination by reason of sale of stockIf the failure to meet the requirements of subparagraph (B) is by reason of the sale of stock of a corporation which is a qualified subchapter S subsidiary, the sale of such stock shall be treated as if—(I) the sale were a sale of an undivided interest in the assets of such corporation (based on the percentage of the corporation’s stock sold), and