Approximately one year ago, we discussed in this column a decision by the Bankruptcy Court for the District of Delaware that overturned an election made by an S corporation, not a debtor in the Bankruptcy Court, to revoke its status as such.1
The desired effect of the election was to convert a subsidiary of the S corporation, which was a debtor in the Bankruptcy Court, from a "qualified subchapter S subsidiary" (or QSUB), disregarded for federal tax purposes as an entity separate from the nondebtor S corporation, to a C corporation separately subject to federal corporate income tax. The Bankruptcy Court considered that prospective loss of nontaxable disregarded entity tax status to be an unapproved transfer of property by the bankruptcy estate of the debtor and overturned the election.
