C Corp Subsidiary of another C corp is sold as an asset

Pros,

I hope everyone is doing well. I have a client who we prepare a C corp tax return for. The C corp is a subsidiary of another corp, which is a foreign corp in the UK. The parent and subsidiary corps are calendar year corps. The parent corp's assets were sold in June 2016, and is now owned by another US C corp. The Subsidiary C Corp shares were sold as an asset since it was an asset of the Parent UK corp return.

Here are my questions about preparing the 2016 C corp subsidiary return:

1) Sch K, questions 16, asks, if the during the year, did the corporation have an 80% or more change in ownership, including a change due to redemption of its own stock. I am thinking I say yes sine 100% of this ownership was changed to a new parent owner. Does this sound right?
2) Sch K, questions 17, asks, during or subsequent to this tax year, but before filing of this return, did the corporation dispose of more than 65% (by value) of its assets in a taxable, non-taxable, or tax deferred transaction? I am thinking I say no since the subsidiary is still being operated, and has its own set of books. It just has a new owner. Does this sound right?
3) Is this a final return, or because the company is still being operated (just has a new owner), do I not show this as a final return? I am going to check if it is now being consolidated in the new parent versus being separated for tax purposes. I think it is. And if so, I would imagine this Is a Final return. Thoughts?
4) Any other items we need to do about this if we are showing this as a final return?

Thank you in advance for any insight.

1. No would be the answer, because it is still owned by the same parent. At least, if I am correctly understanding your OP, which seems to say its parent was sold. That's the one, therefore, that had the >80% change in ownership.

2. Yes it sounds right.

3. It is not a final return, at least based on the facts as you describe them

Now I'd like to ask some questions. The answers might change the above answers.

Are you preparing only the subsidiary's return? If so, why?

Are you sure the 2016 subsidiary return should be for the entire year rather than a short period?

Was the subsidiary included in a consolidated return of its parent until the parent was sold in 2016?

Is the new set of shareholders a group of individuals or an entity, and if the latter, what entity?

Was the sale a taxable sale of the parent's stock? Or tax-free?

If taxable, and the buyer is a corporation, were any of the acquired corporations liquidated?

Was the term "338(h)(10)" thrown around in any discussions, or does it appear in anything you have seen?

Hi Nilo, thank you for the help as always:

1) Makes sense.
2) Got you
3) I spoke to the subsidiary.
a) Yes, we are only preparing the subsidiary's return. This is because the parent company was a foreign corporation, and the return was prepared in the UK.
b) I spoke the new parent owner. As of June 22, the balance sheet was consolidated into the parent company, which is a C corp.
c) No, the subsidiary filed its own C corp return, which is what we are preparing.
d) The new owners are a C corp.
e) It was taxable sale of the parent's assets which the subsidiaries's stock was an asset of the parent company. The gain was of the sale of this asset was shown on the seller's return, which is the UK company.
f) We work with the new parent company, which owns the subsidiary and the subsidiary's balance sheet as of 6/21/16 was consolidated with the new parent's 2016 tax return from this time on.
e) No, the term 338(h)(10) was not elected. I think since it is a C corp.

Post #1: "The parent C corp shares were sold on June 2016."
Post #2: "At least, if I am correctly understanding your OP, which seems to say its parent was sold."
Post #3: "It was [a] taxable sale of the parent's assets."

I await further developments.

The gain was of the sale of this asset was shown on the seller's return, which is the UK company.

. We keep getting new or conflicting facts. I also await. But not with bated breath.

Wow, sorry about this. My OP was worded incorrectly. I have updated . The Subsidiary C corp was an asset of the Foreign Corp. The foreign corps assets were sold, and the Subsidiary C corp we work with was one of the assets sold. We are now working with the new parent owner, which is a US corp and consolidated the subsidiary we work with in it 1120 as of June 22, 2016.

As of June 22, the balance sheet was consolidated into the parent company, which is a C corp.

We are now working with the new parent owner, which is a US corp and consolidated the subsidiary we work with in it 1120 as of June 22, 2016.

Both of these statements are susceptible of varying interpretations. Does "consolidated" here mean for financial statement purposes, or a consolidated tax return? If the latter, why are you preparing a full calendar 2016 subsidiary return? And are you preparing the new parent's return, whether or not it is consolidated?

No, the term 338(h)(10) was not elected. I think since it is a C corp.

. I guess I can accept that it was not elected, but that second sentence does not compute.

There may indeed be more questions, one of which is whether the subsidiary had any NOL carryovers, and another of which is whether the new parent was just formed for this acquisition, or whether it had existing operations.

And I have no idea what implications there are for reporting where the seller is a UK corporation.

Nilo, we are preparing a short year C corp return from 1/1/16 to 6/21/16 for the subsidiary. From 6/22/16 to 12/31/16, the new parent US Corp consolidated in its tax return the subsidiary and will do so going forward. We are not preparing the new parent's consolidated C corp return. The subsidiary has no NOLs. It has a little cash, fixed assets, AR and deferred revenue, and these will be reported of course on the new parent's return as of 6/22/16. Tax return for the subsidiary was done on an accrual basis.

Review and re-consider all the answers. Now appears there was in fact a change of ownership, so answer accordingly.

And now that we know there are short years before and after the acquisition, I urhe you to read carefully the rules in reg. 1.1502-76 in its entirety, including how you allocate income and the election you can make. https://www.law.cornell.edu/cfr/text/26/1.1502-76

That reg. even has an end-of-day rule and a next-day rule.