I understand the differences in taxation between a C corporation and
an S corporation, but I need clarification:

Can an owner of an S corporation be another corporation? For example
can "XCorp", a C corporation, be the owner of "YCorp" an S
corporation?

Thanks.

Hi Akt4pay-ga ...

This is just a reminder to pay attention to the disclaimer at the
bottom of this page. This isn't legal, tax or professional advice, I
am merely providing you with information available in answer to your
question.

So, to answer your question - 

   No, a C Corporation cannot own (or own stock in) a Subchapter S
corporation.

Here's what the IRS says in its Instructions for Form 2553 (Rev.
December 2002):

     "A corporation may elect to be an S corporaiton only if it
      meets all of the following tests:

      ...3. Its only shareholders are individuals, estates,
      exempt organizations dexcribed in section 401(a) or
      501(c)(3), or certain trusts described in section
      1361(c)(2)(A)..."
   - http://www.irs.gov/pub/irs-pdf/i2553.pdf


and in its FAQ:

     "To convert from a C corporation to an S corporation, you
      must meet the same requirements as a newly formed
      corporation electing S corporation status. You must meet
      the requirements of a "small business corporation" which
      are, in general:

        * Be a domestic corporation organized under the law of
          any state or U.S. territory;
        * Have only individuals, estates or certain trust as
          shareholders (no partnerships or corporations as
          shareholders;
        * Have only citizens or residents of the United States
          as shareholders;
        * Have only one class of stock (differences in voting
          rights are OK)..."
   - http://www.irs.gov/faqs/page/0,,id%3D15916,00.html



See also Internal Revenue Code
TITLE 26, Subtitle A, CHAPTER 1, Subchapter S, PART I, Sec. 1361
 - http://www.fourmilab.ch/ustax/www/t26-A-1-S-I-1361.html


Search Stragegies ...
  - Subchapter S corporation

IRS search
  - subchapter s corporation
  - restrictions on subchapter s corporation


Surprisingly, a Subchapter S corporation CAN own another Subchapter S
Corporation, a QSUB, but that's a different matter entirely. Thanks
for your interesting question.

Regards,
Serenata

Wonderful answer! Clear, concise and exactly on point. Thanks also for the cites.

Hi again akt4pay ~

Thank you for the rating and for your generous tip. That was a very
nice thing to do.

Thank you again,

Serenata