26 CFR § 1.1361-2 - Definitions relating to S corporation subsidiaries.
---
identifier: "/us/cfr/t26/s1.1361-2"
source: "ecfr"
legal_status: "authoritative_unofficial"
title: "26 CFR § 1.1361-2 - Definitions relating to S corporation subsidiaries."
title_number: 26
title_name: "Internal Revenue"
section_number: "1.1361-2"
section_name: "Definitions relating to S corporation subsidiaries."
chapter_name: "INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY"
subchapter_number: "A"
subchapter_name: "INCOME TAX"
part_number: "1"
part_name: "INCOME TAXES"
positive_law: false
currency: "2026-04-05"
last_updated: "2026-04-05"
format_version: "1.1.0"
generator: "[email protected]"
authority: "26 U.S.C. 7805, unless otherwise noted."
regulatory_source: "T.D. 6500, 25 FR 11402, Nov. 26, 1960; 25 FR 14021, Dec. 21, 1960; T.D. 9989, 89 FR 17606, Mar. 11, 2024, unless otherwise noted."
cfr_part: "1"
---
# 1.1361-2 Definitions relating to S corporation subsidiaries.
(a) *In general.* The term *qualified subchapter S subsidiary* (QSub) means any domestic corporation that is not an ineligible corporation (as defined in section 1361(b)(2) and the regulations thereunder), if—
(1) 100 percent of the stock of such corporation is held by an S corporation; and
(2) The S corporation properly elects to treat the subsidiary as a QSub under § 1.1361-3.
(b) *Stock treated as held by S corporation.* For purposes of satisfying the 100 percent stock ownership requirement in section 1361(b)(3)(B)(i) and paragraph (a)(1) of this section—
(1) Stock of a corporation is treated as held by an S corporation if the S corporation is the owner of that stock for Federal income tax purposes; and
(2) Any outstanding instruments, obligations, or arrangements of the corporation which would not be considered stock for purposes of section 1361(b)(1)(D) if the corporation were an S corporation are not treated as outstanding stock of the QSub.
(c) *Straight debt safe harbor.* Section 1.1361-1(l)(5)(iv) and (v) apply to an obligation of a corporation for which a QSub election is made if that obligation would satisfy the definition of straight debt in § 1.1361-1(l)(5) if issued by the S corporation.
(d) *Examples.* The following examples illustrate the application of this section:
[T.D. 8869, 65 FR 3849, Jan. 25, 2000]