A qualified subsidiary, as defined by the Internal Revenue Code, refers to a corporation where 100 percent of its stock is owned by another corporation or trust. This ownership must be maintained throughout the entire existence of the subsidiary. The term is significant in the context of tax-exempt organizations and impacts how income and taxes are handled within corporate structures.
The term "qualified subsidiary" is primarily used in tax law, particularly concerning tax-exempt organizations under the Internal Revenue Code. It is relevant in various legal contexts, including:
Users may need to manage forms related to tax filings or organizational compliance, which can be facilitated through legal templates provided by services like US Legal Forms.
Here are a couple of examples of abatement:
Example 1: A corporation, ABC Corp, owns all the shares of its subsidiary, XYZ Inc. As long as ABC Corp maintains full ownership, XYZ Inc. qualifies as a qualified subsidiary.
Example 2: (hypothetical example) If a nonprofit organization, Health Trust, fully owns a healthcare service corporation, it can treat that service corporation as a qualified subsidiary for tax purposes.
The primary statute governing qualified subsidiaries is 26 USCS § 501, which outlines the requirements for tax-exempt organizations and their subsidiaries. Other related sections may include those detailing corporate taxation and compliance requirements.
| Term | Definition | Key Differences |
|---|---|---|
| Qualified Subsidiary | A corporation wholly owned by another corporation or trust. | Requires 100 percent ownership and continuous holding. |
| Controlled Group | A group of corporations under common control. | May involve partial ownership and different tax implications. |
| Parent Corporation | A corporation that owns another corporation. | Ownership may not be 100 percent; can have multiple subsidiaries. |
If you believe your organization may have a qualified subsidiary, consider the following steps:
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A qualified subsidiary is a corporation that is 100 percent owned by another corporation or trust, maintaining this ownership throughout its existence.