IRS Issues Final Regs Treating QSubs as Separate Entities for Federal Employment and Excise Tax Purposes (T.D. 9356)
Community Bank Advisor , 2007 Fall

Final regulations were issued that treat a disregarded entity (DE), such as a qualified S Corporation subsidiary (QSub), as a separate entity for employment and excise tax reporting requirements. The entity continues to be disregarded for other federal tax purposes.

Final regulations apply to payroll paid on or after January 1, 2009, and includes reporting on Forms 940, 941, W-2, and related deposits.

These final regulations also apply to excise tax reporting beginning on or after January 1, 2008.

Under prior rules, the reporting requirements could be satisfied by either the DE reporting or the owner of the DE reporting.

Other Key Points

1. DE owned solely by 501 (c) (3) charity will not be subject to unemployment tax on wages paid to employees.
2. DE (other than QSub) will not be subject to backup withholding for reportable payments considered made by the owner of the parent company.
3. Individual owner of a DE continues to be treated as self-employed and not as an employee of a DE for employment tax purposes.