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Fewer restrictions on S corp ownership

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. I own 100 percent of an S corporation. I’m interested in acquiring a competing S corp as a subsidiary, but I know it’s prohibited. Can I have my son buy the subsidiary? A.A., Minneapolis

A. You don’t have to. Under a tax-law change back in 1996 — included in the Small Business Job Protection Act — an S corporation no longer is barred from owning 100 percent of a subsidiary. Prior to the 1996 tax law, an S corp could not own more than 80 percent of any other corporation. Incidentally, under prior law, ownership obtained through another family member would have been treated as indirect ownership. Tip: Other S corp rules have been liberalized in recent years. Example: S corps now can have a maximum of 100 shareholders.

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