What This Notice Means
The IRS revoked your Form 8869, Qualified Subchapter S Subsidiary Election. The reason given is that you no longer meet the requirements for the election.
A qualified subchapter S subsidiary, or QSub, is a corporation wholly owned by an S corporation whose activity is reported with the parent. With the election revoked, the subsidiary is no longer treated that way. It has its own filing obligation.
What to Do
- File Form 1120, U.S. Corporation Income Tax Return, on time for the appropriate tax period.
- Keep this notice in your permanent records.
- Give copies to the parent corporation and to whoever prepares the returns for both companies.
Figure Out What Changed
A QSub election ends when the subsidiary stops meeting the requirements. A change in ownership is one example: the parent no longer owns 100% of the stock, or the parent itself is no longer an S corporation. Identify what happened and when. That date drives which tax period the Form 1120 covers.
If you believe you still meet the requirements, call the number on your notice and ask what the IRS relied on.
Filing Tips
- Use the Instructions for Form 1120 when preparing the return.
- Consider e-filing. Authorized providers can file Form 1120 through the IRS Modernized e-File system.
- Make sure the parent's Form 1120-S no longer reports the subsidiary's activity after the revocation.
If you received a CP281 notice and need to sort out your companies' filings, call us at (813) 229-7100.